As a venture capitalist, you often have to evaluate and critique the business models of founders who pitch to you. But how can you give feedback that is constructive, respectful, and helpful? Here are some tips to improve your VC communication and feedback skills.
Before you comment on the solution, make sure you understand the problem that the founder is trying to solve. Ask questions to clarify the pain points, the target market, the customer segments, and the value proposition. Don't assume that you know everything about the industry or the customer needs. Listen to the founder's perspective and try to empathize with their vision.
It can be hard to keep a truly open mind when hearing a founder pitch because as investors, we hear and review hundreds of pitches per month. Often they follow the same 8 to 10 beats and it's rare to find a founder so polished as a storyteller that they hook you into the problem within a few minutes of the pitch. I try instead to focus in on the specific customer pain and understand WHY this team, above all others, understands and wants to address this pain. My favorite founders are customer obsessive and that means they are obsessed with the customer's problem.
Dedicated investors spend a week trying to understand a founder's market. On the other hand, dedicated founders spend every hour of every day trying to understand their market. The best thing we can do as investors is ask questions.
Once you have a clear picture of the problem, you can assess how well the solution fits the market opportunity. Evaluate the product-market fit, the competitive advantage, the revenue model, the scalability, and the sustainability of the solution. Consider the assumptions, risks, and challenges that the founder faces. Don't just focus on the flaws or gaps, but also acknowledge the strengths and achievements of the solution.
If a VC thinks they know how to build the solution better than the founder they are evaluating... RUN! As capital allocators, we are evaluating whether the solution proposed will work well enough to be a worthwhile investment of capital. The best way to evaluate that solution's effectiveness is simple: Speak with customers. What do the customers use today? What did they use in the past? What alternatives to this company have they tried out? What specific gaps do they find in their current solution? Understanding PMF, revenue and monetization and going to market is all well and good. But if the customer isn't telling you how much they adore this product, it won't be sticky in the long run.
The best product review I found during a due diligence process read: "We've been using this product for five months... We cannot go back to our old system now that we know this is available." Great solutions will receive immediate market validation. As a founder, when a customer reworks their company structure because they see the value of your tool, you know you have something special.
When you give feedback, be specific and actionable. Don't just say that the business model is good or bad, but explain why and how it can be improved. Provide concrete examples, suggestions, and alternatives that can help the founder refine their business model. Avoid vague or generic feedback that doesn't address the core issues or offer any value. Also, avoid personal or emotional feedback that can hurt the founder's confidence or motivation.
Feedback should not be only positive or negative, but balanced and fair. Start with some positive feedback that highlights what you liked or appreciated about the business model. Then, move on to some negative feedback that points out what you didn't like or what needs improvement. End with some positive feedback that reinforces the potential or the progress of the business model. This way, you can build rapport, trust, and respect with the founder, while also providing honest and constructive criticism.
Feedback should not be delivered in a harsh or condescending tone, but in a respectful and supportive one. Use polite and professional language that shows your interest and curiosity. Avoid using words that are too strong, negative, or absolute, such as "never", "always", "worst", or "fail". Instead, use words that are more moderate, positive, or conditional, such as "sometimes", "often", "better", or "could". Also, avoid using "you" or "your" too much, as it can sound accusatory or personal. Instead, use "we" or "our" to show collaboration and partnership.
Feedback should not be a one-way communication, but a two-way dialogue. After you share your feedback, invite the founder to respond and share their thoughts and feelings. Ask open-ended questions that encourage them to elaborate, clarify, or challenge your feedback. Listen actively and attentively to their answers and acknowledge their points. Also, ask them for feedback on your feedback. Find out if they found it useful, relevant, or clear. Learn from their feedback and improve your own feedback skills.
Don't forget to gauge the person/people behind the model. Plans and ideas account for nothing if the person leading the way is unable to weather some very difficult and uncharted territory.