Join Cheryl and Maxine on an insightful journey into early-stage investing in this episode of First Cheque. The discussion covers the transition from basic checklists to more sophisticated decision diaries, emphasizing structured evaluation and the importance of capturing and analysing decision-making processes over time. Key topics include understanding founder commitment, market size evaluation, and the balance between intuition and quantitative analysis. The episode offers practical advice on refining investment strategies through critical thinking, timely decision-making, and mitigating biases. Additionally, it explores the qualitative nature of early-stage investments and the value of leveraging instincts effectively. Tune in to transform your investment decisions with proven frameworks and mental models.
Maxine’s Decision Diary Template
Transcript Synced · click any line to jump ▾
Cheryl Mack: Founders scale faster on Deel. Set up payroll for any country in minutes. Hire anyone anywhere. Get visas handled fast and get back to building. Visit deel.com/dayone.
Maxine Minter: That's d-e-e-l.com/dayone. Okay, 3, 2, 1.
Cheryl Mack: Hey, I'm Cheryl.
Maxine Minter: I'm Maxine.
Cheryl Mack: This is First Check, part of Day One, the network dedicated to founders, operators, and investors.
Maxine Minter: Investors. If you want to be a better early-stage investor, this is the show for you.
Cheryl Mack: So TL;DR, if you don't want to suck at investing, listen up.
Maxine Minter: Hello. I am so excited to dive in today on probably my favorite topic when it comes to investing. This is the stuff that I, you know, read at 10 PM when I'm— well, I don't go to bed at 10 PM, but if hypothetically I went to bed at 10 PM, this is the stuff I would read to put myself to bed. The stuff I read on my Sunday mornings. So I am jazzed to talk about decision-making, decision diaries, anti-portfolio reviews, and all of that kind of great, good decision-making hygiene. I feel like I kind of dragged you into this one because this is probably not your favorite topic to nerd out on, but hey, we're here.
Cheryl Mack: No, it's not. I mean, I think that I'm so excited to get into it because A, it's probably the thing that I get asked about the most is like, how do you actually make the decision? How do you evaluate a startup? And I think it also varies across investors. So there's such a wide range of how you can make decisions. And I think getting a sense of how other people make decisions is really, really important. It's also the thing that I think makes you go from a good angel investor to an excellent angel investor. So if you are looking to level up, this is probably a leveling up episode. It's not really a 101 episode. This is like, if you want to take your angel investing game or investing game in general to the next level, then these are the tactics frameworks that you really need to start to employ.
Maxine Minter: 100%. Yeah. I would venture a guess that most investors, like professional investors, are using some version of this. Like they're building this infrastructure into the way that they're making investing, because you just can't get away without it, I don't think. So yeah, looking forward to diving in. So first of all, decision-making when it comes to investing. What are some of the frameworks or mental models that you use when you think about deciding to invest or not?
Cheryl Mack: Yeah, so this is a really interesting topic for me because I think I have gone from like this really basic kind of version of it to a much more sophisticated version of it over the last 5 years. So, when I first started, I was like, I just want to make decisions quickly. Like, I don't have time to write all these notes and go through everything. And also, I was just like, give me all the deal flow. And I just want to evaluate all of it the same, which I've found is, since then, have found is near impossible. But one of the things I found at the very early days was like this really quick kind of like checklist which I can't remember who the investor was, but it was— and I wrote, I pulled it and copy and pasted, and of course, didn't write down their name. But it was just a really quick checklist of problem, is this a really painful problem? So, there was 4 bullet points per section, and there's 4 or 5 sections. And to me, that was such an easy way of just like, tick, tick, tick. No tick. Tick. No tick. Tick. Great. Okay. Like score 8 out of 10. And I loved that mental model and I used that one for a very long time where I'd have conversations with founders and would go through that pretty quick mental model to decide right there on the call. It also is worth mentioning that at that stage, my check size was fairly small, so I also had to be really mindful of my time with those founders and a really quick checklist-style mental model that I could go through was really helpful in that scenario.
Maxine Minter: Mm-hmm.
Cheryl Mack: Now, I have a whole evaluation sheet that I sit down with founders founders and spend 45 minutes, you know, asking them deeper questions on things that I really care about. But I also didn't really know what I really cared about when I first started, and I think that's okay.
Maxine Minter: Absolutely. Yeah. I mean, I think when I first started, same as you, it was just kind of like, oh, I think I should do it. Like, that was the question I would answer for myself. It was like, obviously not particularly robust thinking. And then over time, kind of built my way into a more of a kind of checklist style. And I think checklist, especially through investing, is so important to do because of the number of complex questions we should be asking ourselves to kind of really think through the quality of a deal. And, you know, it's nearly impossible for one person to consider and keep in mind all of those things every single time they kind of do it from a mental checklist. Also, it's really easy to feel something and not check that feeling. So have an intuition or a gut and not check that against more fact-based consideration if you're not going through the process of actually like physically writing out your thinking or like talking out your thinking, kind of like passing that through the kind of rational part of your brain. And so I think I did the same thing, right? My progression was to a checklist. Actually, my first progression was into a decision diary. A friend recommended decision diaries as an entry point for me to capture my thinking and how I was making this decision. And then— Mm-hmm. I just went really deep on it. And decision diaries are this incredible tool to allow you to not only do that checklist work to make sure you're kind of asking yourself those key questions and also asking yourself some of those like prudence and diligence questions that are not really about does this company work necessarily or does it kind of, is it a painful problem? Is it like a big problem, big solution? Those kinds of questions, but also like what kind of entity is this? Yeah. You know, some of those own goals where you can kind of get all the way along the journey and then realize, oh, this is actually like, there's some structural stuff that needs to be changed. But I think the kind of decision diary was really useful because it also pushed me to explain my position. So yeah, as opposed to like a yes or no answer, it's like, why, right? Why is this problem really painful? What is the ultimate thesis I think I'm applying here? You know, what is the second and third order thinking on that thesis, right? If that thesis is right, then what, and then what? And That motion was really helpful to consider the number of things that can go wrong for a business at the stage that we invest, like pre-seed, seed, and Series A. There's still a long road still ahead of them. And so pushing my thinking on kind of what do I think the progression is going to be. And the last bit also was the kind of system of record piece, right? Using a decision diary to capture how you're thinking about each of these stages at the time. Then allows you to go back and actually learn the quality of your thinking over time. So my, I kind of like skipped the checklist bit and went straight to the more robust kind of filling out process. And also, you know, what you mentioned there in terms of when you first start angel investing, you're just like, I wanna see all the deal flow and I think I can go through this process with every single one. Like I can guarantee you with a full-time job running a startup, filling out a decision diary for like, yeah, probably taking, 30 companies a month, which at the time I was like—
Cheryl Mack: I mean, I'm at like, I was at like 500 a year.
Maxine Minter: Yeah, yeah, exactly. You know, and I was just like, oh, this is so much work. This is not possible. So it kind of forces the prioritization that you have to work on as an investor anyway to be like quick blush, this isn't a fit. Well then, you know, a deeper diligence and then an even deeper diligence. So I found it as a really, really helpful tool. Did you graduate to decision diaries? Are you still doing checklists? How are you thinking about it?
Cheryl Mack: So I've graduated to a more complicated or detailed version of— I wouldn't say, like, I don't call it a checklist anymore, um, but I certainly don't do a decision diary, uh, and that's one of the things I'd love to get into with you a little bit more. But like, did you find that you started to also prioritize like sections of your, uh, I guess, evaluation process as you started to get more sophisticated? Because I went from like, I want to ask about everything and go into detail about everything to being like, well, I, you know, again, have to be mindful of the founder's time. And also, like, I actually don't care that much about your business model. So, I don't need to go super deep into that. And I also don't really care about like what the product is at this stage. Like, it's going to change. So, like, you know, give me an overview, but I, like, that's not something I need to go deep on. Whereas I realized that things I really cared about was the founders. Mm-hmm. And I feel like I made mistakes early on not digging enough into the founders, problem, and market size. So, my detailed analysis with the founders now really focuses on those three areas, and I basically skip over everything else or do a really high-level version of it. Did you find the same, or do you go through each section, like problem, solution, product, market, traction, business model, use of funds? I can't even think of, there's probably another 3 sections that I'm forgetting.
Maxine Minter: So my decision diary actually doesn't ask me, like I don't prompt myself on those questions. For, I mean, yes, for pre-seed in particular, right? Like asking the question around business model, they're more like a mental checklist that I go through, but that actually doesn't materially factor into my decision to invest or not. The degree to which the founder knows the space is, you know, a space that I fill in and like ask myself about in my decision diary. And that ends up unearthing a discussion about the business model because often, you know, if the founder doesn't really know the space that well, then they will propose a decision model that— sorry, not a decision model, a business model that just makes no sense kind of in that context or that we've kind of seen not to be successful, et cetera. But as you said, right, the probability that they're building the same business model over time to get to Series A if there's not really kind of there, there is none, especially if they are, you know, high execution, really great at working through problem sets as a skill set. Like, they'll find their way to the right business model. There have been things that have switched in and out of my decision diary, but they are less that, like, more traditional diligence checklist and more the questions that I have found over time are actually things I either need to be prompted to think about because they don't my bias is that they don't pop up to, uh, for me to like innately ask those questions. Or there are prompts for me to kind of think more deeply about certain topics, things like second and third order effects of my primary thesis. Or they are things that I want to make sure I capture my thinking on for the better, betterment of my overall decision-making over time. And so, you know, my predictions on the founding team, my articulating where I think they spike, what I think the gaps might be, where I think the risk areas are on this particular founding team.
Cheryl Mack: So, help me understand, in my mind, and this could be totally wrong, you're talking to the founder, writing notes based on questions that you either have a template for or that you have thought of. By reading the pitch deck and you're taking notes based on that, like, I don't know, question thing that you have. And then later on when you're not talking to the founder, you sit down and go through your decision diary. Is that right? Or are you actually like the decision diary is the only thing that you fill out when you're talking to the founder and separately?
Maxine Minter: Both. And the reason I say both is they're kind of meshed into one in our process. So, like very tactically, the fields that I'm filling out from, so when I first meet a founder, I'm not filling out my decision diary yet because I'm doing my first filter. And so I'm asking questions like first filter questions around like, what's the space you're chasing? Why are you chasing it? Like, why do you wanna spend the last 20 years of your life chasing this thing? Fundamentals about the business. But coming back to the point, like those are not things I forget to ask.
Cheryl Mack: Right.
Maxine Minter: They're not things I have a bias around.
Cheryl Mack: But do you write notes on those somewhere else?
Maxine Minter: Yeah.
Cheryl Mack: Mm-hmm.
Maxine Minter: Okay. No, I write notes on those as I am asking those questions and then they get pulled through into our kind of questions section. Of the decision diary. So I anchor back on my point of I'm trying to get better at decision making constantly, and part of a decision diary is a system of record for me to know what I asked and what I answered. So it's as informative to me if I completely didn't ask a question that would have unearthed the piece of information that would have helped me make a better decision, both positively and negatively, as that I asked the right question and still didn't get the right answer and like still didn't unearth those questions, or that I asked the right question, they gave me the right answer, and it just wasn't knowable or at the time that I made the decision. What I do with those 3 categories of information are 2 very, 3 very different things. But to answer the question, yes, and I capture all of my notes as I'm going. It's just a question of kind of how I collate them, but I ultimately start filling out my decision diary at the point that I decide that I'm ready to start making a decision on that company, right? I'm starting to lean in and do my diligence process. And so the actual like deeper, we do 2 deeper diligence calls. And so those 2 deeper diligence calls is the process I'm going through to fill out my decision diary and also answer any other kind of like tactical questions I need to get answered. How do you run it? How many calls do you usually have with them? And do you do checklist? And then, well, you don't do a decision diary, are you working through a checklist? How do you do it?
Cheryl Mack: Well, now that I think about it, I guess actually I've kind of pulled some elements of a decision diary into my like evaluation template. Like to me, I've thought that a decision diary was something like you just reflected on separately and that that was a step I wasn't doing. But it sounds like actually I'm most of this just in one place and kind of a little bit less structured than you. So, I start by meeting with a founder for 20 minutes, and that's because I generally get a lot of referrals. And if I get a warm referral, then I want to actually meet with that founder. So, that initial 20-minute call allows me to meet with like 5 or 6 founders a week while also maintaining a full-time job at Aussie Angels and doing a lot of other things. So, that initial 20-minute call, I really focus on like understanding who the founder is, why they do what they do, like why they're really excited about this and want to work on this for the next 20 years, like why them? And from that point, then I make a decision as to whether I want to go deeper on the other things that I care about. The second call is usually a 45-minute call where I go deep on, like more on founders. And if there's a co-founding team, we'll often meet the co-founder, understand how they interact together, and then go through market size and problem space, and then tactical stuff like, How much are you raising? Who are you talking to? Because I don't lead, so I need to understand where they're at in that raising process, how much they've raised previously, structure, things like that. And also give them a chance to answer questions or to ask me questions. And that also gives me a sense of like how they're thinking about the round and whether they're being smart about this. And then after that, I'll usually go and like do my reflection. And what I'm using during that 45-minute call is this like template of sections that has like problem space and it's got a whole bunch of questions that I'm prompting myself to ask. And then when I'm— after I've done with the call, then I'll sit down and kind of reflect on, on those questions and make my own notes. But I don't fill the whole thing out. Like generally the solution section is just always blank. If you look through all of my evaluation templates, it's just always blank. Same with, same with probably what other sections?
Maxine Minter: Yeah.
Cheryl Mack: Anyway, there's a bunch of sections that are just generally blank because I'd rather spend more time on things that I care about, and I generally believe that if I'm backing good founders. And then after that, it's usually another 30-minute call, or I can move quickly and we can do it over email where we'll go back into some of the questions that I had remaining on, this was my thesis here, this is what I think. But all of it goes into those notes. And so, I think actually I am probably not as— The things that I know you record, your emotional state at the time, or did anything big happen in your life at that time, or I don't know. What are some other are like weird things that you record as part of your diary?
Maxine Minter: How dare you? They're not weird. They're very informative to how I'm making decisions. Yeah, I record my emotional state, right? How I feel about the decision. I record the time at which I make the decision and the day that I make the decision because I'm learning over time.
Cheryl Mack: Like to the minute?
Maxine Minter: Yeah, it just gets pulled in from our database. So when I like fill it in, it pulls it in. But I used to, like when I used to use Notion as my operating system, It is 8:53 AM on Monday the 4th.
Cheryl Mack: Pretty much.
Maxine Minter: Yeah. I don't know, to be honest with you, I don't know that I've got any particular insight there in relation to the time when I've done my anti-portfolio reviews, but I have got insight in terms of the day, right? I try not to make investment decisions on a Friday, for example.
Cheryl Mack: Hmm. Why is that?
Maxine Minter: Because I'm tired, I'm more impatient, I can be less interested, or I seem to be more short-sighted in summary. And so I'd fall into the trap of, you know, especially as an early-stage investor, I think it is so easy to fall into the trap of diligence in what's in front of you as opposed to what it could build into. And so especially when you're in that kind of like messy early stage where someone has like sub-$150K in revenue, it's coming from a bunch of different pockets, you know, they're still in the early stages of integrating the product. It's really easy to get stuck in like not enough traction, you know, don't think the business is where it needs to be, blah, blah, blah, as opposed to, okay, what has to go right for this to be successful? I do more of that former thinking on a Friday and more of the latter thinking the front half of the week. And so I try to hit these investment decisions kind of Monday, Tuesday, Wednesday, as opposed to Thursday, Friday. But I find that I am much better at doing like follow-up diligence calls Thursday, Friday, because Monday, Tuesday, I am in, I know I'm in kind of rapid execution mode, so I can be quite impatient about asking questions. So I'm trying to get to insight really quickly. Also on those days, we've got internal meetings on Mondays and Tuesdays is when I meet all, like, all, most of the founders. And so I can shortcut exploration of things where I actually want to give it space. So I do a lot of my, like, more deeper diligence conversations on Thursdays and Fridays. So I think I don't, So, you know, that has been a learning over time, but I seem to make better decisions by doing that. Now, keep in mind, I think an important thing to name here is investing in early-stage businesses is investing into complex systems. So that you can't— the goal here isn't to find the formula that is perfectly predictive. That's a fool's errand. We're trying to identify correlations where you behave in certain ways or make decisions in certain ways that seems to correlate with a better decision-making process, a better founding team that you're backing, more insight in the product that you're building. And I think that is really important to embrace because I think it can be really easy when you're stepping into this environment of uncertainty to try and make a decision-making process that just suffers from false accuracy. And I'm sure, I'm so confident there's false accuracy kind of all the way through my current decision-making process, but It seems to work for me so far.
Cheryl Mack: I'm so interested. Are you more likely to say yes or no on a Friday?
Maxine Minter: I don't know. I haven't run that analysis, whether I'm just like that binary, yes, no. I'm not sure.
Cheryl Mack: You're just not— you don't like your decision on Friday.
Maxine Minter: Correct. Yeah. I'm more likely to anchor on short-term stuff on a Friday, Thursday, Friday, especially if it's been a big week relative to Monday, Tuesday. Whereas Monday, Tuesday, the world is my oyster. It's a much more expansive thinking. I've had a good weekend. I'm much more recharged. And And I actually think that that is the mindset you need to be in to be able to see the vision that these founders see. Whereas if you come in being like, tell me how you're going to be, you know, cash flow positive in a year's time. Well, like you kind of miss the point if you're pre-seed investing. It actually raises for me, my good friend Mahesh has this framework that he uses when he thinks about early stage investing and he invests in super, super early stage companies out of New Zealand. He frames early stage investing as input investing, where kind of mid to late stage investing is output investing. So what he means by that is the inputs into this system are the market context that they're operating in and the founders and the rest of the team that are going to be kind of around that journey and capital. And so the question you're asking yourself is all about like these inputs, are they likely to come together and create the magic of a highly successful company as opposed to later stage venture. You're investing in outputs, you're investing in revenue and output from the system. You're investing in, you know, traction and output from the system. You're investing in, you know, who's already invested, right? The capital that's already been allocated. So it's a kind of backwards looking as well as a forwards looking process. And actually it makes me think of, there is a researcher from Harvard called Gonbers who does a lot of research on how VCs make their decisions. And I find it really clarifying and maybe even validating, but his research, he's collaborated with a bunch of other folks, Ilya Shrubilev from Stanford as well, he's worked really closely with, but I find it really validating because he essentially validates that for early stage, you know, the vast majority of early stage investors are heavily influenced by intuition and/or qualitative elements to their decision, whereas mid to late stage, they're majority influenced by quantitative measures to their investing. In fact, I think he said something like 15 to 20%.
Cheryl Mack: That makes sense though, right?
Maxine Minter: It makes sense, right? Yeah. But it's nice to know that that is the majority, right? Because the number, I think, especially as a fund manager, the number of LPs that will ask you about your decision-making process, implying that there is some kind of formula or some kind of—
Cheryl Mack: Like secret formula that's this is definitely going to work.
Maxine Minter: Exactly. Like, what kind of revenue do you invest in, et cetera?
Cheryl Mack: I think it's different for everyone.
Maxine Minter: Yeah, I think that's right.
Cheryl Mack: Yeah. And we'll— we've talked to so many different investors on this podcast so far who have, like, had different portfolio construction strategies, and that has to factor in, right? Like, if there was one right answer to how you make decisions, then everyone would do it. And the number of investors we know that, like, run really complex analytics on the market on deal flow and still aren't necessarily always coming out on top just shows that actually this isn't a one-size-fits-all and there's no right formula.
Maxine Minter: Right. It's also why I get so frustrated. There was this kind of, especially coming out of the ZIRP era, but still kind of, I meet a lot of companies that are trying to make the investor matching process a product, totally programmatic, or the investing process totally data-driven and programmatic. And it just isn't. It's just not data-driven. It can't be 100% data-driven. And because it is a complex system, right? I just don't think it is fully predictable. And therefore you can't just use data to predict it. I'm probably just gonna get like a barrage of hate from this comment, but it's true.
Cheryl Mack: I have a confession. I was one of those founders. I tried at one point.
Maxine Minter: Right. Can you talk me through that? How did you get there?
Cheryl Mack: How were you like, "Oh, this feels like it's predictable." So, it started with getting frustrated at the fact that it was difficult for me to help founders connect with the right investors. And I knew which of the investors invested in which categories and which they didn't. And I consistently, and I still consistently get founders, A, reaching out to me pitching B2C apps when that's not what I invest in, and B, getting founders coming to me being like, "Hey, this is what I do." Who should I talk to? And I was like, this needs to be a better process. So, it started with a sense of like, there are filters, I know what these filters are, and there should be an easy way for a founder to just filter by, this is who I am, and it'll say, these are the investors that match you. That part, I think, is still valid. And now there's a lot of directories that do that.
Maxine Minter: I agree.
Cheryl Mack: But at the time, that's what it started with. And I set out to just like document that type of like high-level filter data and then feed it back to founders in a really efficient way. Then more from there to say, well, if I'm doing it this way, why couldn't I then do it the opposite way for investors to see like where, what are the startups that match you, and then start to pull in even more data around what we know has been successful and different rounds that have been done and a whole bunch of other stuff, uh, and then use that to predict what's going to be the best investment for you as an investor. Um, that was the piece that, uh, investors got really excited about, the like deal flow opportunity. Um, But ultimately realized, we realized two things. So, I did this with a co-founder several years ago. Ultimately realized two things. One, that investors didn't, there was like adverse selection bias. Like if you have access to it through a platform, then it's not proprietary. And investors all wanted to be able to say, we've got proprietary deal flow.
Maxine Minter: Mm-hmm.
Cheryl Mack: And two, we just weren't the best people to pull in and work on. Like AI was starting to come up and we're like, we're not the best people to actually do this, even if this was a thing. But ultimately, investors didn't want to have that kind of intuition feel taken away from them. And actually, I get pitched this still as well, where people want to do that matching. And I get excited because I can see the potential, but yeah, ultimately it didn't work.
Maxine Minter: Yeah, savage. I mean, I will say, do you think it ever can work? Like, what would have to be true? For that to be able to work in terms of decision-making on investment and like driving success?
Cheryl Mack: I think it can work up to a point, but because the market is always changing and you win in this game by being contrarian and being right, so you will always have an opportunity as an investor to go against the consensus or the patterns that everyone else is seeing and be right. It's interesting, I was talking to John Sharp. From Hatcher+ yesterday, the day before, and they run a platform that has analyzed like 6,000 startups. And if you use their software as a VC, you can plot those charts on how well a potential startup might do based on the inputs that you put in, which I think is really interesting. And I think that's like a perfect example of This can always be a tool that investors use, but I don't think it will ever replace and fully get there. It will never be all of it. It will be some of it, and we will get better tools, of course. But yeah, you're not going to be able to program an AI to decide which startups to invest in, because as soon as you do, then somebody else will be like, well, I'm going to invest over here, and oh, look, I got a winner, and then you have to retrain. So, yeah.
Maxine Minter: Totally. I hope that's interesting. I mean, I think the attraction of Moneyball with an AC is so alluring. And this is a game of interest, meaning like if you can systematically de-risk the investment and/or like systematically decrease the possibility that they will die, you are systematically increasing the probability that they will live and thus systematically increasing the possibility and the probability that they're gonna be an outlier. And so could you use a data product to put that detail in and like make that prediction? Like, Absolutely, in theory. But I also, I don't know that we know what, I don't think that we like on average across the entire ecosystem, especially across geos, like I don't know that we know totally what predicts success. We know what's correlated to it and maybe you can like increase those factors that correlate to success. But I just, I'd like, I just, maybe that's why it's like so intoxicating as a space still to be like operating in is because it's not predictive. Of like, there is so much human still in it, you know, that you can't predict. Uh, and it's such a human industry, and so maybe that's why I like it. Maybe that's why, uh, I have tried so hard to put like more decision-making rigor.
Cheryl Mack: That's why we are— that's why we're all here. We like to feel— yeah, we, we like to feel like we, we can do something that others can't. We should actually get John on the, on the podcast to see if he wants to talk through how they use the data and what it's useful for. But let's go back to decision diaries though, because I have always felt like decision diaries have been this complicated thing that's going to take 6 hours of my time on a deal. And is that something that I really feel is going to move the needle? Again, maybe inches. We're in an inches game here. But if I was to add in, what's a base level of— what would you recommend for the average angel investor who isn't doing a decision diary at the moment, what are some of the things that you might say, like, we'll start here, do these 5 things? Is it recording the time of day? Is it recording the emotional state? What are the biggest impact things you think we could add in?
Maxine Minter: Yeah, definitely not the emotional state and the time of day. That definitely doesn't give you deep insight to the way you're making decisions. That's more about maybe misguided optimization. What would I suggest? There's probably 5 questions I would encourage you to ask yourself in the decision-making process and record your answers to them so that you can learn over time why— you can learn over time both the quality of your decisions and then like tactical bits to help. Well, the first bucket of questions I would suggest you ask is that you record what you understand the product to be, the space that they're chasing, and your predictions on the founder. I think spending time kind of capturing your current thinking as you are under those 3 buckets, founders, uh, is really helpful. Um, I think the second thing that I would encourage you to capture is your prediction or the thesis you have coming into the deal. So essentially, what is the core driver of the value that you think, if right, will be the difference for this deal being successful, and if wrong, it A tactical example would be the fact that everyone uses Uber for the example for everything. But like, if you were writing your core thesis for Uber, if you were investing at seed, your core thesis might be that mobile phones are going to become ubiquitous, which if true, everyone will be able to access this easy ability to get a, in that moment, black cab, right? That is your core thesis. Core thesis, platform shift, which then drives Uber being a mass market product as opposed to a niche market product. If iPhones were, or smartphones weren't ubiquitous, if you got the platform shift wrong, if you predicted that the platform shift wasn't happening, there's no world where you think Uber becomes huge because you can only book like the vast majority of your market is booking on a desktop, which no one does, right? No one's carrying their laptop around, they're not pulling it out. To book an Uber when they're on the— or a black cab on the street corner.
Cheryl Mack: I don't even know if you can book an Uber on a laptop.
Maxine Minter: Fair question. Fair question. And then the next question I would ask yourself is, what is the second and third order effect of that? Second order effect being, okay, if your primary thesis is true, then what is— what becomes true? And third order thesis is that but another step. So it might be, okay, iPhone's become ubiquitous. That's your core thesis. And the second order effect of that is that maybe their distribution channel also was going to become ubiquitous. So open question, question: how do they grow profitably, right? And it might back you into a question about how expensive it was going to be, right?
Cheryl Mack: Because everyone will have access to distribute through smartphones, so any other ride-sharing app could also have that same channel. So then what does that mean for Uber and their like ability to win in that space?
Maxine Minter: Right. So you start asking, I mean, if you are lucky and/or smart, you start asking yourself questions about network effects. What does defensibility look like at scale? How does a product like this, if they are successful, how do you maintain shareholder value as opposed to distribute that value just into the consumer base? I think this is a really valuable question to be asking yourself on AI right for example. So as I said, primary thesis, second, and tertiary thesis. And I think those would be a great start for most people to capture how they made that decision. Oh, sorry, one last one. What do you predict will happen based on the information you have right now? What do you predict will happen? And I think this can be a really clarifying one.
Cheryl Mack: As in, like, how many customers they'll get, or like, in what sense, what do I think will happen? Like, I think this company will be very successful, but that's my prediction for all of the companies I invest in.
Maxine Minter: Right. But how? Successful how? Right? What you're doing there is pushing the discipline of like actually writing out what has to be true for this company to be very successful. Definitely it's not useful if the question you ask yourself is, what do I predict would happen? And your error bars are this company goes to zero through very successful. Tick, done. Decision diary completed. It's not going to be very useful for you when you go back to look at it. The purpose of capturing that is it's you having the discipline to look back and be like, oh, that's how I made this decision. So if in 3 or 4 years it's successful or not successful, it actually captures how you made the decision as opposed to just that you made the decision. I thought it was going to be successful doesn't give you any data to build from. One that I heard recently, so The Generalist just recently did a conversation with Bernard Kossler, just on tear, really doing some of his best work. Did you know that when he was I think it was Kleiner. He invested in like NetSuite and a bunch of the kind of early internet companies and made Kleiner $10 billion of returns on that 10-year tear. $10 billion in returns.
Cheryl Mack: That's a billion dollars a year.
Maxine Minter: Outrageous.
Cheryl Mack: That's outrageous. I actually really love—
Maxine Minter: Outrageous.
Cheryl Mack: Vinod, he is such a good human at the same time. Like I met him a few times and every time he just, Every time he speaks, he will go and just stand in the audience afterwards and let person after person pitch him, talk to him, ask him questions, and he just listens. And I'm like, man, no wonder you're so smart. You just have the patience to listen to every human in these scenarios. Like, obviously he has time to recharge at other times, but yeah, like, just such a good human.
Maxine Minter: That's so impressive. I think that's really smart. So he, in the generalist coverage of him, he sharing what he learned in that period while he was a client. And one of the questions that he asked himself, himself, or I think he was actually reflecting someone coached him on the question, what are the questions to ask that will dictate whether I invest in this deal or not? And just that prompt, I think is a really interesting clarifying question to be like, okay, what actually matters here? Like, does it matter to me that the founder is growth-oriented or not? In my case, yes. Does it matter to me that the founder is in Australia or the US? My guess, no, right? So asking those key questions that for a deal are actually binary, that will dictate whether you do the deal or not. I found that really insightful.
Cheryl Mack: Yeah, I love that. That I think is the majority of what I've built in. And when I talk about like focusing on things that I care about, it's like, what are the things that really matter to me about this investment or not? And like being clear about those things. I think I have gotten to a stage where I'm like, I am super clear that these are the things that matter to me, and I make sure that I ask all of these questions so that I feel like, yes, I can absolutely tick off these buckets, and then everything else is ancillary.
Maxine Minter: Yeah. Sounds like the solution that they're building is ancillary, so you should just go ahead and delete that off the checklist. I think it's right though. Like, you know, if you're asking them other questions about space and like the technical bits, I think that's fair, especially at pre-seed.
Cheryl Mack: I I looked at a lot of product demos in early days, and sometimes I would get really excited about a product because I liked the look of it and maybe didn't go deep enough into other areas. And then of course, they realized that the customer didn't want that product and had to pivot. And then other times I would look at a product and I'd be like, this is crap. And again, like, just— Because I feel like I'm such a visual person that sometimes I over-index on product demos. And so I actually like, I don't do that part. I've made investments where I have never seen the product because I know that like that's something that triggers me in the wrong direction. And if I do look at the product demo, it's usually later in the game after I've like made my decision. And it's more of a like due diligence thing to say like, okay, well, let's just make sure the product actually works the way that you said it does. And that, that point I think is really important that I've understood about my decision-making process that sometimes I can I can be clouded in the wrong way by seeing a product too early in the process.
Maxine Minter: Yeah, so powerful. I think just like recognizing so much of early-stage decision-making is instinct-based and it's qualitative-based. And I think normalizing that, especially in the Australian ecosystem, is super, super important.
Cheryl Mack: Yeah, and I think understanding where your instincts aren't leading you in the right direction and where they are leading you in the right direction and to double down on the ones where your instincts are right. And try to mitigate the ones where they aren't.
Maxine Minter: This has been the best. I have loved diving into this topic with you. I could nerd out a bit about this all day, every day. I'm excited actually to see if this resonates with anyone. They reach out to us and tell them about their early decision-making or early checklist.
Cheryl Mack: I would love to hear anyone, if you have a framework or a decision-making diary, please share. And also, Maxine, I'm sure you and I are happy to share some of the templates that we have.
Maxine Minter: For sure. Yeah, I'll put them in the show notes.
Cheryl Mack: Sounds good.
