The downside of conducting a first meeting without any preparation is that I have not researched and thought through important elements like the team, idea, market, and competition in advance. As a result there’s likely to be a large gap in my knowledge of the subject matter and that of the entrepreneur. Most of my comments in the first meeting are instinctive reactions rather than well-constructed arguments which reflect a deep understanding of the topic at hand. This unstructured approach also makes it unlikely that we comprehensively address each of the factors necessary to make a fully informed investment decision in sufficient detail.
However, the same factors which make it risky to conduct a first meeting without any preparation also contribute to the success of the approach. By bringing an outsider’s perspective to the discussion, I’m able to ask those obvious questions which the entrepreneur should have already thought about from many different angles. In a surprisingly high fraction of first meetings, I discover that the entrepreneur has yet to properly reflect on and address one or more of these obvious points. This sends a strong signal about the natural inclination and ability of the entrepreneur to focus on what matters most rather than getting lost in the details. This unstructured approach essentially helps us focus our discussion on the most important 20% of the factors which will explain 80% of the startup’s future success.
The second big advantage of an unprepared approach is that it makes the entrepreneur responsible for guiding the discussion. If I was prepared, I would already have a predetermined agenda and a set of questions which I’d like to ask of the entrepreneur. I would essentially be leading the discussion, even though the entrepreneur, not me, will be leading the business. This sets the wrong expectations on day one. The vast majority of startups need a strong leader to be successful, and a strong leader should be able to convey a clear vision and convince their team, investors, and customers about the value of what they’re doing. If they can’t lead me in the direction they seek, this is a strong signal that they’re either not convinced of the direction themselves or are incapable of attracting followers.
The jury is still out on whether this unprepared approach will produce better investment outcomes. As outlined above, I have strong reasons to believe that this will be the case. However, the results won’t be clear until several years later, when I’m able to compare the investment outcomes of those startups whose first meeting I prepared for with those whose first meeting I entered with no prior research. Even then, the difference in the timing of the two sets of investments will make a direct comparison incomplete. I’ll need to benchmark the investment outcomes against an index representing the average outcome for comparable investments during the relevant time period. Please remind me to perform this exercise before 2020. Until then, try this approach at your own risk!