Venture capitalists look at businesses from many angles. Is the market big enough? Do the founders have good founder-market fit? Is the problem worth solving, does the solution make sense, and is the product a half-decent implementation of the solution? The diligence goes deep, too: calls with potential customers, market experts and character reference calls.
However, I’ve worked with a lot of pitch coaching clients and have realized that actually doing technical diligence is remarkably rare. It seems that investors will often look closely at what they understand well, which means poring over the financials and potential of the business. Less time is spent where there’s less expertise, which, for many investors, means that they’re just looking for a check box to check. If there’s a technical co-founder — literally any technical co-founder — on the team, it’s solid.
The problem, of course, is that there are as many CTO roles as there are companies. Each startup needs a different degree of technical oversight and expertise, and there’s definitely an argument to be made for being stage appropriate. Premature optimization isn’t helpful to anyone, but having a CTO with the right experience, knowledge and expertise for the stage a company is at appears to be examined only rarely in the investment process.
Kyle Wild, founder at Root System, spotted this pattern before I did, and we spoke at length about how investors’ blind spot for technical skills is pervasive across the ecosystem.
“Paul Graham has written a lot about technical co-founders,” Wild told me. “But Paul Graham happens to be an engineer. When he says words like ‘technical co-founder,’ that has a lot of meaning to him, but it’s not universal. When he’s evaluating startups, he’s not just saying ‘you need a technical co-founder,’ like it’s a check box, nor does he say it’s binary, like either you have one or you don’t.”
The upshot is that a lot of very smart investors are running blind when it comes to technical co-founders and essentially hoping for the best when they invest at the earliest stages of investment.