What Investors Learn When They Watch You Talk To Customers

0:00What we try to do is introduce them to a prospective customer and join the call or join the meeting. And we'll just kind of sit there and observe. And you learn more in that 30 or 45 minutes than you've probably learned in all the other time with that founder in aggregate because you get to watch them in their element. And sometimes you realize, oh, they weren't that good at pitching me, but wow, they are incredible in the context of talking to this customer. and therefore I feel pretty good about their ability to translate those skills.

0:32Amy Cheetham: Amy Cheatham is a partner at Costanoa Ventures. As part of her diligence, she sometimes watches founders talk to prospective customers because those conversations can reveal things a pitch meeting can't. In this conversation, we talk about what she's looking for, how founders learn to sell, why distribution matters, and how to start building investor relationships without a warm introduction. We also get into a simple way to test your idea in the next seven days. I'm Walter Thompson. This is Fund, Build, Scale. Are you building something that's hard to explain? It can be a sign you're working on something interesting, but it also raises the risk that you're missing out on fundraising, sales, hiring, and media opportunities.

1:15Amy Cheetham: I help early-stage founders sharpen the narrative. what matters, why now, who needs to care, and why they're the right team to make it happen. If you're preparing for a raise, a product launch, an important customer meeting, a panel discussion, or even a hiring push, I can help you pressure test your story before the stakes get higher. Visit the Fund Build Scale website to learn more or email fundbuildscale at gmail.com. Amy, thanks so much for joining me today. I really appreciate it. Awesome. It's great to be here. Thanks for having me. So for people who don't know you, give us a quick overview of your role at Costanoa and what do you invest in?

1:53Amy Cheetham: What stage usually? How early do you get in? Of course. So we will invest really as early as you can imagine. So company formation, we love to be there on day one with founders for a myriad of reasons, but often because I think it gives us the ability to get to know founders really early and then either attract them or invest in the company at that stage. And then we'll also lead Series A's. So anything from really pre-seed through Series A is our world. And yeah, I'm a partner at Cosino Ventures, and I've been here for the last seven years. What I'm focused on today is primarily AI for highly regulated industries.

2:32So think financial services, healthcare, legal tech, manufacturing, anything where there's probably a deep expertise beaded in order to sell into these categories and some sort of necessitates founders that often come from those categories. Not always, but a lot of times they do. And so those are the places I've been primarily focused at the moment.

2:57Amy Cheetham: What does your world look like on a day-to-day basis? Yeah, depends on the day. But I would say largely it is, I don't want to say an even split, but a mixture of the things you described. So lots of blocking and tackling, working with the companies that I've already invested in. I've been at CoSnow for seven years and have a relatively full board load as a part of that. And so that's helping with everything. I will give you an example. Like today, interviewed a candidate for one of my companies. I also attended a board meeting. I also spent a little bit of time helping one of my companies that is exiting navigate that process.

3:30And then, you know, just got off of a call with a net new company. And I think I have three more net new company meetings later today. So it's always a smattering of sort of portfolio work and helping founders either with problems, helping them navigate hiring. I also spend quite a bit of time helping get customer introductions and navigating both recruiting and customer introductions for my portfolio companies. So a decent amount of time gets spent on that. And then, of course, a lot of time building relationships with new founders. And then, you know, the last bucket, I would say, of course, is internal form building work inside of Coast to Noah and then spend time, you know, talking to LPs and fundraising.

4:11Kind of that is probably a little bit bikier around when we're actually fundraising. But that's the other component that, you know, I get to do.

4:20Amy Cheetham: What percentage of the founders you're talking to, let's say just kind of early discovery calls, are people who have been laid off recently? That is a great question. I don't know if anyone's ever asked me that. You know, it's interesting. I think if they've been laid off, they're probably not necessarily talking about it in those terms. And so I'm not sure that I've talked to a founder recently that has been laid off. I've definitely talked to founders that have maybe seen it coming and are leaving for those reasons or have felt like the companies that they're working at are not going on the trajectory that they would want and are leaving to start something, but not directly correlated to layoffs that I've seen recently.

4:59Amy Cheetham: I mean, is there for you, is there a stink? Is there a stigma on those founders? I think it depends on the situation. I think if you're being fired for cause, that's a totally different situation. I think if you're part of the layoffs at a company that's had a hard time maybe transitioning from SaaS 1.0 era into becoming an AI native company, I think that's a totally different situation. And there's so much good talent that are at those companies that has maybe done a good job themselves transitioning into this era, but was maybe stuck at a company that wasn't doing a great job. A lot of founders, first time founders, don't realize that talking to VC and cultivating that relationship, it's a sales job.

5:41Amy Cheetham: And I understand what it means in practice. I want to hear what you think it means or what it means for you, though, in that kind of how you want to be sold to, I suppose. Yeah, I think it's a really important skill. And I think what's interesting is that a lot of founders maybe don't realize that it's not just fundraising as a skill. We're understanding how founders sell to customers. We're going to be judging how you show up in a pitch and assuming that that's also how you show up with customers. We're also going to assume that how you show up in the pitch is how you show up with prospective employees.

6:14And so if you think about every aspect of company building, whether that's hiring, selling customers, leading a team and selling a vision to your team, and then ultimately also selling that vision to investors. So much of that is can you weave together this narrative that explains like, why are you the right person to build this? Why is it the right time? All of these important components of weaving together a narrative. And I think sometimes founders don't recognize that that's what we're actually judging. It's not, can you necessarily sell us for the sake of selling us? It's how does it bleed over into these other categories?

6:52And I just was having lunch with a friend right before this, and we were talking about founders that struggle to kind of like really, I don't want to say brag, but at least like talk about their wins in a very tangible way. And look, I think we're in a moment in Silicon Valley where you have some people on this end of the spectrum that are talking about things that haven't even happened. yet as though they are foregone conclusions in their business. And obviously that's not great. And then we have founders over here who have actually achieved things that are having a harder time weaving together that narrative and really talking about their wins.

7:26And I think there's a middle ground, right? I think there's a way to be truthful, but also highly convicted. And I think sometimes finding that balance can be really challenging for founders. And so it's something we talk a lot about, both in terms of coaching the founders that we already work with, but also in terms of how do these founders show up in early pitch meetings with us? Because it really ultimately is a skill. But I think it's one that becomes more and more important the bigger your company is and the more stakeholders you have to tell that narrative to.

7:59Amy Cheetham: I mean, let's say there were 10 seed stage founders in your waiting room right now. Yeah. How many of them would be able to tell their story in a way that was convincing, authentic, you know, portable? That's a great question. I think it really depends. And I would say one of the challenges I would say is that it depends on how complex a product you are building. So I would say if you gave me 10 founders that are building infrastructure, my answer to this question would probably be different, right? My guess is that the 10 that are building infrastructure, there's going to be a smaller number that are good at pitching that at a level that a layman can understand, right?

8:45And some VCs are going to be deep enough to understand it, but some are not. And same thing goes for employees and same thing goes for customers, right? And I think some of the best founders that are building in really complex categories are able to zoom out and explain it extremely clearly to anyone. And so I would argue like, look, you probably get 10 app layer founders. Yeah, there's probably a pretty high hit rate on the number of people that can at least explain the problem in a pretty good way. Maybe they haven't fully perfected and woven together that narrative, but I think it can be really hard in more complex categories to figure out what level to fly at and what level of extraction you should be talking in.

9:22Amy Cheetham: I mean, you mentioned you just broke up into three cohorts, actually, customers, investors, and employees. Where do they, let's try to keep it positive. Where do they usually win first? And what's the usually what's the last category where they figure it out? Yeah, I mean, look, I hope I hope they're winning in the customer category first, right? Because if you haven't figured out how to speak your customer's language, I think you have a you have a you have a real problem. So I would hope that you start with customers and you're able to speak their language. And then from there, maybe you're able to sell a few employees that are deep in that domain.

9:52And then you start working on the broader narrative. And look, I think for better or for worse, sometimes that gets reversed, right? We've seen companies in Silicon Valley that are incredibly good at fundraising, but it turns out they're actually not very good at building product and selling that to customers, right? And so I think there's this sort of like three-legged stool and a lot of times you get one or two legs, but not all three. But I mean, yeah, ideally the most important thing is being able to speak your customer's language. And if you can do that, I believe you can figure out how to do the other two.

10:25Amy Cheetham: I've heard this saying over and over again, Like you can't read the label from inside the bottle. And so it's pretty hard if you've never even tried to do it before. It's like a whole introspective exercise. And then you want to go out and walk in the forest and, you know, take notes in a journal. It's hard to kind of figure that stuff out. What does a strong narrative look like? Like, can you like, can you give me an example of actually I'll ask the question this way. If someone can't carry that story across all three of those vectors, is that how many points off do you take? Because it seems like a high bar to clear.

10:55Yeah, I think it depends on the situation, right? Like I would say there are founders that are very maybe early and young, right, where they have very steep slope, very steep learning trajectory. and you believe that they can metabolize feedback so quickly, that it's okay, right? If that learning loop is so fast and they can iterate that quickly, I think you're buying into the idea that they're going to be able to iterate and metabolize feedback so quickly that it actually doesn't matter where they're starting on that line because the slope is going to be so steep. And I think that is frequently true in particular for younger founders, but often for first-time founders, right?

11:36That might be really deep in a domain, really be an expert in that category, be great at talking to customers, but maybe they haven't learned the hiring muscle yet, or maybe they haven't learned the VC muscle yet. And I'd be way more okay, I think, taking that risk versus the reverse, where you believe this person's going to be able to get up that curve quite quickly and learn quite, quite quickly. I think that's the most important thing from my perspective. And like, look, I think one of the things we love doing in Diligence that helps us learn this is if I come away from a first or second or even third meeting with a founder with a question about their ability to talk to customers, what we try to do is introduce them to a prospective customer and join the call or join the meeting.

12:21And we'll just kind of sit there and observe. And you learn more in that 30 or 45 minutes than you've probably learned in all the other time with that founder in aggregate because you get to watch them in their element. And sometimes you realize, oh, they weren't that good at pitching me, but wow, they are incredible in the context of talking to this customer. And therefore, I feel pretty good about their ability to translate those skills. And look, a lot of times the reverse happens too, right? Where maybe they're really good at talking to VCs and you get them with a customer and the customer like needles them on something and you see some cracks in the foundation.

13:00and we find that to be certainly one of the most helpful data points that we can gather. And hopefully we got a good customer intro for the founder as well.

13:09Amy Cheetham: Right, right. I mean, okay, feel free to change the names for Protect the Innocent, but can you share an example where someone thought they had it but just didn't as far as like they had the hook of their story, they thought they had the kernel, they just really were missing it? I don't know that I have a great recent example. Um, maybe I'll give you a, a positive example of this. Um, and you know, there's a company in our portfolio that's in the legal tech space that we're, that we're really excited about. And the founder, when he started the company was, was fantastic, uh, but young and hadn't done enterprise sales before.

13:47And so we had a question of how's he going to show up in, in these rooms? This is MinQ at, at Ivo. And, you know, he can keep me honest on this when he hears it, but I think we had probably introduced him to at least three or four customers in the course of our diligence process. And I joined a couple of the calls and immediately it was so clear to me that all those questions were unfounded, right? Like he spoke their language. He was so quickly able to have those conversations and left every conversation. I called the stakeholder to back channel afterwards. And they were like, you know, immediately like want to progress to a demo.

14:23Vision is so clear. He's so right about this pain point, like sort of all the checkboxes that you were looking for. But that was one where I think prior to seeing him in his element, we really, really liked him and were so excited, but hadn't seen it click with a customer yet. And it was so helpful to see that. I don't know that we've seen, I mean, look, I think it's probably harder to come up with a great example of the reverse because I think usually we've probably passed on them for other reasons before getting to that point. But I do think there's plenty of examples. Minkyu is certainly not the only one in our portfolio where we've gotten them in front of a customer and it's like really accelerated our excitement about the company.

15:05Amy Cheetham: Was Minkyu a repeat founder or a first-time founder? First-time founder. So what was your sense of their customer discovery process? Do you have any insight into that? Because it sounds like they were really comfortable talking to a lot of different people. Yeah, yeah. And this is a company where we led the Series A. And so they were a little bit further along by the time that we invested. He came from a legal tech background. He was a corporate lawyer and then realized, you know, so understood customer, but most of their customers are in-house counsel at companies, not corporate law. But he deeply understood the archetype.

15:37And I think just spent a lot of time talking to customers, metabolizing feedback. But I think when you have that combination of really innate ability to understand customer problem, but a really good like mind for translation into product. You can iterate on a product so quickly and you speak the customer's language. And I think he had this special combination of both of those things that led him to not only being able to do a lot of customer discovery, but I think, look, you can go do all the customer discovery you want and still build the wrong product. And so if you are able to listen and metabolize the feedback that you're getting from your customers, you can go build a great product.

16:14And I think that is where he is very special and very spiky as a founder is his ability to translate customer asks into actually building something that delivers. And I think that's a that's a skill set that we probably don't talk enough about in in in founders.

16:33Amy Cheetham: Is he a technical founder or is he a non-technical founder as far as he is? He is a phenomenal product sinker and product like forward founder. He has a technical co-founder, but he is one of the most like product oriented founders that I probably work with. Nice. I mean, do you have any kind of framework or suggestions for someone who, because I think for a lot of founders, a lot of first timers, it's like they don't want to sales. When you say sales, right? Like you have all these things pop in your mind as far as like a salesperson and inauthenticity and all this kind of, you know, a pattern, you know, reading from a script, all those kinds of things.

17:10Amy Cheetham: And so I think people have a natural dread of being perceived as being inauthentic or salesy or, you know, BSE, whatever. So how do you, is that something you can coach for? And how do you push someone over that hump as far as, no, it's just, it just saved the lines. It's fine. I find it so funny that somehow culturally we've decided that being salesy is synonymous with inauthenticity. And I mostly just laugh at that partially because I'm like, my dad was an IBM salesman. 40 years. I'm not casting shade here at all. I'm just saying. Oh, no, no. I'm not laughing at you. I just mean, like, generally, I think in the zeitgeist, right?

17:46That's like such a trope. And I find it so funny because at the end of the day, like, every single job is a sales job. Like, if you get senior enough in any job, your job turns into sales. Like, VC is a sales job, right? Being a podcast host is partially a sales job. So anyways, I just laugh at that a little bit because I think it is so funny how important that skill is. And yet still we have this like little bit of an issue with it. But anyways, to get back to your question, I think it can be learned for sure. And I would actually argue that the best salespeople are the most authentic, like the people that I think do the best job of connecting with customers, but also just generally with other people are the people who are deeply authentic, show up as themselves and have an innate curiosity that they actually want to understand the other person.

18:37Like the best salespeople in my mind, you don't feel like you're being sold to. You feel like they just happen to really understand the problem that you're having and know how to fix it. And I think very talented founders learn that trick. Not necessarily trick, but they learn that over time. Some of them, I think, have it innately, right? If you're deeply curious about a problem and solving it, I think that can show up as authenticity in a really special way and be a very, very effective way to get people to try your product. But for sure, look, I think it's something that can be learned. There's a reason that as early stage companies, we encourage them to hire heads of sales, you know, relatively early on because you do want to get experts in those categories.

19:20You need to do your founder selling up front. But, you know, it is definitely a skill that at least to some degree can be learned over time.

19:29Amy Cheetham: You know, also in the prep call, you mentioned a trap when you can tell the founder's story better than they can. Can you walk me through an actual example of that? And I'm kind of wondering, is that a situation where is that is that a positive? Is it negative? Like, is that something you did you pass on to do like that? Or is it a neutral thing where kind of like we can again, we can coach you through how to tell your story better?

19:52I broad strokes, I would say it's a bad thing. Generally, if I find myself in a situation where where I'm nodding along as someone's pitching and I'm like, yeah, yeah, yeah, yes, totally agree. This is the thesis that I've been pursuing. And then when I summarize it, they say, oh, wow, like I hadn't thought of X, X, Y, and Z. Look, sometimes that's okay because maybe they're very early and it's a very raw idea, right? In that camp, that's fine. Let's talk about it. You go do some more work. You come back. You tell me why I'm wrong or why I'm right on these points. If it is a more fully formed idea, you should be able to pitch it way better than I can, right?

20:31And you need to be really deep in your domain. I think that can be a trap that VCs fall into because, and we talk about this a lot in our investment committee, where I think we will all get so excited about an idea and then realize that we've actually created a version of the business and the opportunity that doesn't exist in reality. or creating what we want to exist, but maybe that founder and or that idea are actually not exactly what we're describing. And I think that can be really, really problematic. So it depends on the situation. Like, again, if it's really early and raw, I actually think it's fine.

21:06And that can be a really helpful brainstorm for founders. But I shouldn't be able to pitch your customers better than you can.

21:14Amy Cheetham: Just drilling a little deeper. So I'm guessing, Do you take a meeting without seeing a pitch deck first, or are you looking at the deck before the meeting in most cases? Ideally, I'm looking at the deck before the meeting, but there's a lot of founders that don't always love sending their decks first. So I would say I'm flexible, but I can always show up so much better prepared if I've read the deck before. Sure, sure. So I think there has to be an understanding that that pain point is significant enough that you can go build a big company. But I would say the place where I think a lot of founders get tripped up is if they can't articulate why is this a big problem and how am I well suited to solve it and how am I going to solve it?

21:58That is often the place where I find decks and or narratives to be most lacking.

22:06Amy Cheetham: Some things are coachable and I think some things are some people are constitutionally like not skilled or oriented towards storytelling, let's say. Um, but separating those groups of founders who get better at narrative versus the ones who don't, is there, what, what's the difference as far as behaviors or traits? What separates those two? It's so funny. I always joke that like everyone in venture should have gotten a psychology degree instead of, you know, whatever business degree or, you know, whatever it might be that we grew up in. I was a proud government major, but certainly wish I'd taken a few more psych classes.

22:43Look, I think this job is so funny because ultimately you are you are trying really hard to do some sort of like behavioral analysis on all the founders that we're investing in. And that's both fun and challenging. Right. I would say to me, it is curiosity is probably like the root of all of this. And but there is sort of like a speed of, you know, I always use the word metabolism, as I have a few times so far in our conversation. And I think it is, is your like metabolic rate high enough, right? Can you hear something that you're curious about and then go drill down really deeply into it and then come back up and say, okay, I learned this thing.

23:24Now I know what I do, right? And I think that requires a bunch of things. It requires a humility, right? To admit that maybe you don't know everything. I think it requires curiosity to go look in the first place. And then I do think it really requires this degree of like extreme speed and rate of change and just like velocity of learning and velocity of adaptation. And I think those can be hard things to judge, especially when we're investing in younger founders where you don't have the arc of a career to watch how they've learned over time. And so some of that stuff you just have to try to experience in an in-person meeting to kind of judge that.

24:04But for sure, I mean, look, my perception is that the best founders are very adaptable and know when to change and when to stick to their intuition. And that's a very amorphous skill, I would say.

24:23Amy Cheetham: Do you trust founding teams to kind of self-sort? Like I'm thinking like with the sorting hat in Harry Potter, like that kind of tells you what house you're supposed to be in. But do teams show up properly structured as far as, you know, she's doing sales and I'm doing CTO or do they sometimes have the wrong hats on? How frequently does that happen? It definitely happens. I would say, I mean, look, the answer to all these are so funny because I'm like, well, look, the best teams I think have probably accurately sorted themselves. Not always, right? But I think I have a bias towards founding teams, you know, with two co-founders.

25:03Doesn't mean that teams of larger than that cannot be successful. There's plenty of examples of that. But I think often two can be a great pairing. And you have one that either wears a much more technical hat and that the other one is wearing a more sales hat. We also see a lot where, you know, similar to what I was explaining at Ivo, like MinQ is very deep in the product. but he still wears the CEO and the more go-to-market oriented hat, even though he still runs product. And then he has a co-founder who's deeply technical, who's a CTO. And I think sometimes like having two technical co-founders where those roles are still very delineated can be a really good match.

25:40And I'd say we probably have a bias at Costa Noa for those types of teams. However, as you alluded to earlier, maybe we talked about in the prep call, like I think distribution in an, you know, post-LLM world is becoming more and more important. And so I think there are more teams where there might be a much more clearly delineated person that just wears the go-to-market hat. That person's probably going to be the CEO, not always, but probably going to be the CTO in most app layer situations. And so I do think you're maybe ending up in situations where you have a couple other co-founders that are maybe focused on product and then also on engineering, or that's just wrapped up into one person.

26:16I would say largely people have sorted themselves themselves pretty well when they show up. And it's not all that common that there's ambiguity around those roles. It happens occasionally, but it's a pretty small subset of founders from what I've experienced.

26:35Amy Cheetham: All right. How about this? If I'm a technical founder, I'm just, you know, I'm sitting by myself in a room. I don't I haven't met an investor yet. How do I know whether I'm in the danger zone as far as my narrative framing? Is there a way to kind of fit check myself before or pressure test my story before I bring it out to the market? What will be like a good framework or tag? I would talk to customers. And if it's resonating with them, then I think you can find a way to get it to resonate with VCs and with employees, right? And I would pressure test it with customers. Also like pressure test it with someone that knows nothing about the category that you're building in.

27:18And if you can explain it to, you know, your mom's cousin who doesn't know anything about the category that you're building in, and you can do that in a succinct way, like, again, that doesn't necessarily have to be the bar, but practice on people who are not your core customer or your core, you know, venture market. And that way, I think you're going to hear very quickly if you're doing a good job explaining it succinctly and effectively. But again, I would come back to the same thing. Like, If it's effective with customers, that is the main thing that matters. And so get honest feedback from them if you can.

27:52It's funny.

27:53Amy Cheetham: I was just saying, I used to call my dad on the way home from job interviews. And if I couldn't explain what the company did to him, then I wouldn't. I never took those jobs. It's so funny. That's like the, I think that's a perfect litmus test, actually. And it's such a reminder too. Like, I think about this all the time. Like if I can't explain what a company I'm investing is to a potential employee in a really succinct way, like I probably shouldn't be investing in that company because either I don't understand it enough or the narrative is not clear enough that you explain it well. Right. Have you ever I mean, there have been people who came in with a muddled narrative in April and you passed and then maybe they came back like, you know, in November and they sharpen things up and you're like, I'm in.

28:32Definitely. I would say that that is probably one of the dangers of us investing as early as we do is oftentimes we will meet things and it will be really muddled when we first meet it. And then and maybe maybe they'll clean it up over the course of the fundraise. They'll get the fundraise done. And then we won't meet him for another six months for whatever reason. And they come back and I'm like, oh, yeah, I wish I wish their narrative had been this clear. And like, look, we will oftentimes invest when it still is messy, right? Because I think you can see the trajectory and the slope of the company.

29:07But for sure, I mean, I think that happens. Sorry, my claw is bugging out in the background. I think that happens quite a bit, actually. And I think that can be one of the dangers. I mean, one of the companies in my anti-portfolio, which I guess I'll hang myself out to dry for, is Rillit in the AI ERP space. And I met it when it was called a different company back in the depths of COVID. And it looked really different. The narrative was not that clear. It was very, like Nick was very impressive. It was a very impressive founder. But the narrative wasn't there yet.

29:40Amy Cheetham: And we passed. And I think at least in hindsight, that looks like it was a mistake. But that is one where like the narrative was not clean and clear yet. And had we seen it, you know, maybe, I don't know, six months later or something, I think there's a world where we might have made a different decision at the time. You said something interesting, which was at the application layer, distribution is the moat. And I kind of want to get more into that. What does it actually mean? I think right now everyone's trying to figure out what is defensible and what will differentiation look like over time?

30:15What will durability of a lot of these application layer businesses look like over time? Of course, everyone is worried about what the boundaries of the foundation models are going to be, where those boundaries will be, how permeable will those boundaries be. And I think we don't know yet. And so one of the things that I think a lot of people have rotated towards right now is what are the markets that are least likely to be within the boundary of the foundation model companies? And what are the ways that you can build a distribution moat with those companies? So I'll give you an example. I think some places inside of healthcare are likely to be good examples of that.

30:58I think selling to healthcare payers is a great example. These are very large, very highly regulated institutions that have very long sales cycles. They're hard to sell into. And I think if you go in and you're able to sell something that is effectively solving a pain point for a large healthcare payer, and you can do it in a way that's HIPAA compliant, and they trust you, and they believe that you have a trustworthy brand over time, I think the size of the prize for businesses that can do that is really, really big. And but you have to do a lot to get that distribution, right? Like winning a contract with a large payer is really hard to do.

31:36And it takes patience. It takes capital. It takes time, all of these things. And so I would say those are the types of places that feel like you can build a distribution mode. Once you get in, the size of the prize is enormous. And once you get in, it's pretty unlikely that you're going to get ripped out. And so if you can get over that hurdle of actually signing a contract with them, I think you're in a pretty defensible spot. Look, time will tell, but that's an example of a place where I believe if you have the chops to execute on, I think you can build a pretty defensible business.

32:09Amy Cheetham: You know, you've got narrative clarity, then you can also get that distribution, it seems like. Otherwise, again, you're kind of just kind of doing one-offs or trying to get people to kind of on your side. Yeah, I think that's right. And I think there's also another component here where I think at the application layer, domain experts are going to be more likely to be able to sell into these highly regulated industries. Look, does it mean that someone that's not a domain expert or does it come from that category can't do it? No, of course not. However, I do think you have to be really deep and you've got to be able to build trust in these categories.

32:41And doing that alone, I think is hard. And again, like that's all part of the narrative, right? If you came from the category, You can weave that story together with why you're the best person to build this business, why your team is best suited to build the most trustworthy version of whatever product or category you're building in. And I think that carries a lot of weight in particular in highly regulated industries where trust is perhaps the most important thing.

33:06Amy Cheetham: So with Ivo, I mean, is that a good example? Like how did Ivo's storytelling kind of become their moat? Yeah, it's a great question. I think a couple of different ways. One, they have been very thoughtful and very targeted in terms of the types of customers that they're selling to. So they have decided we are going to be the enterprise grade contract review and intelligence platform, and we're going to sell to Fortune 500. And owning that end of the market means that you have to build enterprise grade software, right? That means you have to be highly compliant, highly accurate. You have to have a whole bunch of other compliance and regulatory components built into your product.

33:48There's a lot of enterprise-grade workflows that need to exist that just don't need to exist if you're selling to a much smaller business. And they made a very deliberate and concerted decision to go after that category. And I think that narrative has been really helpful because once you win a couple of those customers as they have, that flywheel starts to spin. Because once you sell a couple of these really big customers, you can go to the other Fortune 500s and say, great, you're the, you know, X number customer in this category that we've worked with. Please feel free to call them and they'll tell us how trustworthy we've been.

34:24So I think that narrative starts to compound over time. And I think that's where there's a real benefit to choosing your lane, both in terms of vertical specific, but also, you know, scale of company specific. Do you want to be the mid market? Do you want to be SMB? you want to be enterprise grade. And I think I was in a great job of choosing, you know, in-house counsel at Fortune 500 companies and really building, being very purpose-built for them.

34:49Amy Cheetham: Does domain expertise becoming more of a must-have and not nice to have? I don't know that I've seen a work shift, but I also would say I'm biased. Like my, every investor I think has a founder archetype that they like and gravitate toward, right? And all of us have that. My founder archetype has always been domain experts. And I've always loved a founder that has like deep understanding of this market and has decided, hey, from my learnings at XYZ company, I wanna come and build. I mean, I'm an investor on the board of a company called Marble Health in the behavioral health space. And that is a second time founder that had built a business called Headway in the behavioral health space, decided he wanted to build something specific for teens and adolescents and started Marble.

35:40And like, I think Jake is sort of like middle of the road for me, founder archetype who like deeply understands the problem, saw it from the inside and wanted to go fix it. So I'm probably biased. I don't feel like there's been a huge shift. I will say, look, I think more younger founders are starting companies than ever before. That has been a huge shift. I think we've seen slightly fewer younger founders in the application layer. I think you tend to see, at least from my perspective, more of them at the infrastructure layer for whatever reason. And I think part of that is that they don't have domain expertise from 10 years of working in a specific category.

36:19My guess is that that may shift over time. But at least today, that's been been my experience of kind of where you tend to see domain experts pop up versus where you might see some of these younger founders.

36:32Amy Cheetham: what's the smallest thing someone could show you that changes your perception that they have like not just an idea but an actual company like do they need to show you something that is it is the product inside or is it more like the market scope and vision so hard to separate those two because i think they're so an extra blade linked but i would say if you can articulate effectively why this is a big pain point, I think that usually lends itself to understanding the market more clearly. And so I typically want to start there. And I mean, yeah, you know, I don't know what the smallest thing is necessarily, but the smallest, the smallest thing that usually yields the biggest, you know, impact is, hey, I had a conversation with a customer and I learned X, Y, Z.

37:23And here's, Here's why I believe that this is demonstrative of what other customers are going to think in the future. This is good.

37:31Amy Cheetham: I mean, you definitely seem like you are swayed by, you know, what did the customer say, which makes a lot of sense for founders who are pre, you know, pre-revenue, pre-products. They're in wireframes. They haven't hired anyone yet. They're pre-everything. They don't have a customer. Can customer basically be the person they talked to and spoke to for a while? Is that a customer in your mind as far as? Absolutely. I think that counts as, I mean, look, it's not a customer in terms of you can't tell me you have ARR, just to be clear, but it is a customer insofar as like, did you go talk to real human beings who would potentially be the right frame of reference to think of as buyers in the future?

38:12And that's all I mean, right? Like, have you gotten an insight from a potential customer? That's the most important thing. And absolutely. I mean, look, I think the best founders are talking to potential customers all the time before they've even put together wireframes, right, to try to understand the market that they want to sell into.

38:30Amy Cheetham: You said a lot of your best investments kind of come from relationships that you were building before the person had the idea for the company. How do those actually start? How do people, how do you build those relationships, generally speaking? A couple different ways. I mean, I'll say, look, I think there's I'd have to go go through every company, but there's a combination of different ways that we get to know people. Look, I still spend and send a lot of cold outbound emails. That is a huge part of how I source and find things. The last two deals that I did both came from outbound emails that I sent.

39:02I think I had to send quite a few outbound emails to one of the founders in particular, but ended up and ended up doing both of those deals. And so some of it is that right where I've done a lot of research on a category. I'm really excited. I spent a bunch of time researching who I think the interesting companies are. As you can imagine, that's more frequent at A than it is at Seed. But even at Seed, I source plenty of things through cold outbound. So that's one category. I'd say the other category is I hear about it, get an introduction through my network. And if they're not fundraising, to your point, I love to spend a longer amount of time getting to know the founders.

39:35There was a Seed deal that I didn't end up doing last year where I probably spent five or six months, meeting with the founders every couple of weeks, getting to know them, understanding what they were building. Ideally, during that period, we are doing things like making potential customer introductions, making potential employee introductions. So I get the opportunity to sort of, one, like show what value Costa Noa can bring to the table and what I can bring to the table. But also I get every time I make an introduction, I get feedback. And so it's very helpful for us to be able to make some of those introductions and hear, oh, you know, they actually didn't show up that well for this candidate that I introduced to them.

40:16OK, that's data. Let me file that away for later. Or they ended up hiring the candidate and the candidate was really excited. OK, great. That's data for later. And so ideally, we love to be able to build those relationships over a longer period of time because it makes it so much easier to make an investing decision when when the time comes. we don't live in a perfect world. And so there's lots of times where we're trying to make a decision over a far shorter period of time. But I would tell founders that, look, you don't want to be spending all of your time talking to VCs as wonderful as we are.

40:47But if you can pick a short list of a few to build relationships with, I think a lot of times that can serve you incredibly well because hopefully they'll be helpful. But also hopefully when you go out to fundraise, you have have a really high chance of potentially leading your round.

41:05Amy Cheetham: If you were a young founder starting from zero, if let's say you probably didn't go to Stanford and didn't have a built-in network, where would you start to start and build your network? I mean, it's, would it just be kind of finding investors who seem aligned or maybe I want to work with them in five years or like local, I mean, there's got to be a different million ways to kind of crack this nut, but like, what would be the first couple of things you would try to kind of diligently start connecting with people who you could ladder up to? at some point we have to pitch. I would talk to other founders in all honesty.

41:36I think that can be one of the best paths. One, hopefully they can give you good and helpful advice on building your company. But two, I think they can give you a really honest read on what investors have been helpful to them. And look, it doesn't mean that you shouldn't, you know, very quickly then start to build out a roster of VCs that you can talk to. But I think getting a warm intro through a VC, through another founder, I think is one of the best possible ways. to get an introduction. And I think you're going to learn a lot about fundraising. And especially if you're, you know, not from Silicon Valley, not living in the Bay, I think it can be a great way to get access to a whole bunch of different types of learning.

42:15So probably start there. And then look, I think reaching out to if you see a VC that has written something that, you know, sparks your interest or is aligned with the thesis that you're pursuing, reach out to them. I think that can often be one of the best ways. What I would caution people against is like, look, if I get a blast email from a founder where, you know, I can click unsubscribe, I'm probably unfortunately going to click unsubscribe. But if you send me a really targeted outreach where it's really clear that you've done some research, like those are my favorite inbounds to get. And I love getting them.

42:46And I try as hard as I can to be responsive. And so I think, you know, the same thing probably goes for me the same way that I do outbound to my founders and try to be incredibly thoughtful about the emails that I send out. I think that's kind of the same advice that I give VCs. But again, if you can start with other founders, I think that's a great place to get started.

43:05Amy Cheetham: How do you prefer to be pitched? I mean, again, everyone has their own personal, I mean, I'm guessing a warm intro is involved, but beyond that, how do you prefer to get, I mean, an email? Is there a web portal on the website? If I saw you in a conference hall coming out of the green room after a panel at a conference, Like what would be the best ways to get a positive interaction? All of the above. Like I said, look, I am never averse to cold headbound. If again, if it's thoughtful, I'm always open to that. And again, like I think know your customer, right? It's the same way when you're pitching potential customers for your company.

43:45Like if you're raising a series B, like probably don't pitch us, right? We're a seed in series A fund. If you're doing something in consumer, like probably don't pitch us. So I think be really thoughtful about who and how you pitch people. But for me, like email, LinkedIn, and then, of course, anyone who's a friend of the firm, warm intros, anything like that is fine. But we're certainly not opposed to cold and found as well.

44:07Amy Cheetham: You have a lot of experience as an operator and on the other side of the table as well. So give me one experiment a founder could run in the next seven days to improve how they tell their story or just validate their idea. And this could be someone, you know, before they quit their day job without spending thousands of dollars or, you know, going online to do a ton of research. Just what's one simple one week test they could run next month? I'd reach out to a bunch of whoever you believe your core customer is on, you know, whatever medium you want to use. If it's LinkedIn, you know, if you're a B2B company, it's probably LinkedIn.

44:42And I would test a couple different messages and see what kind of response rates you get. And look, you might not get a bunch of people with your first, you know, your first set of outreach, but I would play around with your wording. I'd play around with the types of people that you're reaching out to. And you're going to learn more from that cold outbound than you will from the warm intros that you get to friends, because a lot of times a warm intro is going to tell you what you want to hear. And I think when you're doing cold outbound, that's how you can really see if there's a there there. And like, look, sometimes it's not demonstrative of reality.

45:16Maybe you pick the wrong people to reach out to, right? But I think you can learn a lot by doing that in a really short amount of time. And you'll certainly know if you have a positive reaction very quickly. I think sometimes you can get sort of a lukewarm reaction that's hard to know what to do with occasionally. But I think you'll either way, you'll learn something that would be very helpful with just a quick blurb outreach.

45:38Amy Cheetham: Awesome. Amy, thank you so much for the time today. I really appreciate your perspective. Thank you. This was so fun. It was awesome talking to you. The Fun Build Scale theme was written by Michael Tritter and performed by Michael and Carlos Chárez. Michael also composed Ocean, the track you heard at the top. If you enjoyed the episode, please subscribe and leave a rating. It helps more people find the show. You can get the Fun Build Scale newsletter on Beehive, follow along on Instagram, and if you have a guest suggestion or a question, reach me at fundbuildscale at gmail.com. Thanks for listening.

46:13Amy Cheetham: Fund Build Scale is a production of Truth and Soul Media, LLC.