Investor: If a startup founder doesn't follow up, should you pass?
As an early investor (angel or seed investor), there are thousands of potentially interesting startups that you might invest in.
The issue is that it's so early! Some companies have users, some have tech, some have a great team, some have revenue, and so on. But more than ever, at this early stage, it's extremely difficult to figure out which eggs are the good ones.
Because any filter or criteria is so random at this stage, we see a lot of investors who select criterias based on how simple they are to be applied. The simplest and most famous one being: If a user does not follow up, I pass.
Why it's a good idea
Simple to set up
It's extremely complex and time consuming to follow up with all the founders you've reached out to or been in touch with. If you use Streak or any other CRM tool, your funnel is already complex enough and trying to follow up with everyone would suck up too much of your time.
Why it's a bad idea
It's a bad criteria
If a founder doesn't follow up, he might be:
- Busy working on his startup
- Talking with other investors...
In both of these examples, the fact that he didn't follow up is actually a good indicator of future success, and passing on such a founder might turn out to be a very bad decision.
It does not optimise for time
A startup founder might be a bad investment today and fail, but use his learnings to start a second company which might become a really good investment. In such a case, removing him from the funnel in the first place was a really bad decision, but it would have happened anyway, due to the system's design.
Wouldn't it be great if you just stayed in touch with this founder and invested later on?
From funnel-based, to relationship-based
CRMs are funnel-based by design. You have a list of founders at the top of the funnel, you meet, you do your due diligence, present to an investment committee, come up with a term sheet, ... And at every step of the funnel, some will churn because you decide so, and some will churn because they forget to follow up and you've got 240 other startups to worry about.
The better solution
At Nat.app, we think that investments are mainly done based on the founding team. That's why we've built a CRM that does not have any funnel feature.
Instead, we've built an algorithm that looks at your email & calendar data to figure out your relationship strength with every single founder you've talked to and simply let you know when you're at risk of losing touch. This lets investors become humans again and focus on building relationships with founders, rather than dragging them down a funnel.