Darkmode Ventures reposted this
Driver-based investing. This is a big component of our investment philosophy at Darkmode Ventures, and it's inspired by CFOs. 🎉 Just like top finance leaders know that past performance isn't indicative of the future, we know that early startup traction is not always indicative of unicorns. Sometimes there's not enough traction ("too early"), sometimes it's misleading ("lots of growth, but will it scale?"). In either case, to forecast the future, we need to understand what the drivers of success are, and to forecast these drivers forward as accurately as possible. We see 2 large advantages to driver-based investing: 1. You will have conviction to invest in companies earlier while taking on only marginally more risk. This is because you can invest as soon as you've got conviction in the "inputs" as opposed to waiting to see the "outputs." For example, rather than waiting for a founding team to clearly show a revenue hockeystick, you can try to predict the drivers that will lead to this and invest right before this critical inflection point. 2. By understanding drivers, you can avoid investing in companies that have an incredible early track record, only to flame out in their later years because of an unsustainable business model. If the "driver" of early revenue traction is low pricing, highly custom software, or something else that won't work in the long-term, it's time to dig in with the founder. Investors - if you're thinking about this, we'd love to compare frameworks and learn from each other!