Korva is a scroll of the internet’s best ideas.
The life's work test
Another test: could you honestly, intellectually explain to someone you care about why this company could be their life's work? If the answer is no, the project doesn't line up, and the investment shouldn't happen.
The chemistry test
The Saturday call is a chemistry test, and the founder has to feel the same way. An investment-grade opportunity, one that probably works and makes money, can still fail it. A partner needs real chemistry so each side learns from the other, and without it the answer is to pass.
Does being right matter
The third test is whether being right matters. A business can be right about many things and still have nobody care, which leaves too little value to build. If they won't care, the company won't build enough equity value.
Why does founder-investor chemistry matter?
A venture investor and a founder commonly work together for a decade, through hiring crises, pivots, and board disputes. A 2020 survey of about 900 venture capitalists by Paul Gompers and colleagues, published in the Journal of Financial Economics, found that investors rated the team above the business model, the market, and the product. The authors surveyed venture capitalists at more than 600 firms.
Why do funds hold startups for a decade?
Successful startups commonly take around a decade to reach an IPO or an acquisition. Investors cannot sell easily in the meantime, since private shares trade rarely. Funds are structured around that long wait. A venture fund typically has a ten-year term, often with extensions.
More from Invest Like the Best with Patrick O'Shaughnessy
