Avoid These Founder Red Flags: A VC's Honest Perspective

0:00 Today, I'm joined by Sophie Buenasisi. Sophie has built her career at the intersection of marketing and growth and has brought that expertise to the world of venture. She's part of the team at GTM Fund, a venture fund that's all about helping B2B SaaS companies scale by surrounding founders with the best go-to-market operations in the business. Sophie brings a unique perspective as both a marketer and an investor, working directly with portfolio companies to help them navigate the realities of scaling and winning in a competitive SaaS market.

0:37 I'm excited to dig into her insights on what VCs are really looking for in startups and uncover what might be some red flags from an investor perspective. Sophie, thank you so much for being here. I'd really love to dive right into the topic because I'm so excited to get your perspective on all this and I know our audience is going to be excited too. From an investor perspective, we work really closely with VCs as well and I know there's always a bit of an art and a science to the work that you do, finding the right fits, finding the right companies, but just high level, how do you approach the decision-making process of making an investment?

1:22 There's certainly both an art and a science to it. You got that right and we often frame it through a surfer analogy. So there's a wave, surfer, and a surfboard. The wave is the macro trend, the why now that creates the opportunity. It could be falling AI infrastructure costs, regulatory tailwinds, or new distribution shifts, so without the right wave, the best surfer in the world can't necessarily win. The surfer is the founder, their skill, vision, tenacity to ride that wave, and the surfboard is the product. Super important, but a little bit more flexible as naturally it will evolve and adapt over time.

2:00 At the early stage, it really comes down to two things, team and timing. You can have a great team and the wrong timing or a massive wave in the wrong surfer, and neither works. Like the magic really happens when both line up. Yeah, I love that metaphor because it makes a ton of sense and some things aren't completely in certain people's control, so they do have to be opportunistic. Just like a surfer out there trying to catch the biggest way for a surf competition, you do need all of those working in tandem.

2:32 I'm curious, do you have any way of stack ranking these? If you were to think which one might be more important than the other, or which combinations might you want to index towards, how do you think about that when you're evaluating potential investments? They are all incredibly, incredibly helpful when we think about stack ranking them. I mean, the founder is always incredibly, incredibly important, but especially at the perceived and seized stage. So that is certainly one of the most important, important parts.

3:03 If I were to go through the signals that we look for in that surfer, overall, there's a couple key things. Number one would be earned secrets. So founders who have stumbled upon a deep, non-obvious insight into the problem space. Sometimes it's through lived experience, like we've got Marc Andre of Gaia, a portfolio company who built and sold his own ISP, and then created the software to run it. Sometimes it's obsession, like founders who just dive so deeply into a problem that they discover truths that others might have missed.

3:36 Always high agency, relentless personalities. That's a big one. People like May Habib of Rider who just simply will not stop until they figure it out. Outstanding references, of course, an important one. Backchannel references matter more at the seed stage than later stages because it's one of the cleanest data sets that we actually have on a person's ability to execute. And then I'd say spikiness. And we're not looking for founders who are well-rounded and everything. We really want N of one people who are world class at something.

4:09 The one founder we backed, Adam from owner, he ran the world's largest Minecraft server as a teenager. That kind of obsessive, unique achievement is a signal of an exceptional operator. And ultimately, while vertical theses matter, the equation matter, the deciding factor for the surfer is whether a founder has an unfair advantage in execution. Because ultimately, tech modes are declining, especially now with AI. It really is your go-to-market strategy and execution that determines whether you win or not.

4:43 I think that's so true. And it's something we've been talking about on the podcast quite a bit, where the barrier to entry to build a SaaS product before just used to be so high. You'd need teams and teams of engineers. It would take months, if not years, of development before you had something that was even at an MVP level. Then it required investment. You couldn't even really get started unless you had a significant amount of investment in the early side. But you're right. Now the barriers of entry are much lower. More people can get involved in the game, which I think is a good thing.

5:15 I think it means we're going to get even more creativity and better products. The competition is going to be higher. And the ones that make it, to your point, will be executing at the highest level. Not maybe they had some unfair advantage to get started a little bit earlier, but the ones who can really execute. I want to double click on this, because I feel like this is such a cool way to frame it and think about it. When you're talking about earned secrets, I've never heard it phrased that way.

5:45 But I think it's really explanatory of why some founders have that secret sauce and just seem to skip potholes and move faster at a higher velocity versus others that might get stuck earlier on. I'm curious if you could dive a little bit deeper into where those earned secrets come from and maybe some good examples you've had with founders you've worked with before, too. You bet. Earned secrets reiterated upon a starting point, which was more of a repeat founder. I think that's what you'll typically hear from VCs is we like to back repeat founders. And don't get me wrong, that is certainly a signal.

6:23 But we've evolved that to be earned secrets because we're seeing more and more now that it's not necessarily about your track record because of A.I. and because of a lot of these new developments like you called out around product not being the barrier anymore. It really is that distribution or that earned secret, if you will, that creates the leverage. And there's two things I mentioned them a little earlier, but overall would be lived experience and obsession. So lived experience to break that down even further would be someone who has been there, done that. Maybe they founded a company in the space, so they've worked intimately in it.

7:04 They've operated in the space. And so they have this whole network and know everyone, you know, Mark at Gaia and fast break. A lot of our companies are people who have founded companies before. And so they've got that lived experience of the problem. They felt so deeply, you know, we've got founders that created a product to solve a use case and pain point that their mom was having and things like that, where they really felt the pain intimately when it's the obsession part of the track. That's where founders, for whatever reason, just get really obsessed with the problem space and accordingly build the solution.

7:43 And so we've got, for example, you know, two credible founders building the products called anything and it overall helps you create mobile and web apps just through text. It launched just a couple of weeks ago. They had over three million views over five hundred thousand users within four days and neither of them were founders before. They were simply technical builders who are obsessed with democratizing access to building. And so that would be an example of the other part, which is the obsession. So lived experience obsession.

8:19 I love that. And speaking as a founder myself, I definitely before starting LeanScale felt the pain at a visceral level for the type of work that we do helping B2B venture back startups scale quickly with rev ops, sales ops, marketing ops. And I was the person in seat. I'm in a VP of ops role, not able to do my job because I don't have the right technical expertise. I don't have the roadmap to do what I need to do next. The space changes so frequently and there's so many go to market tools, too. I just felt like I never had a partner there with me and I had to figure it out all on my own.

8:58 And I think knowing that and feeling that pain, it just one, you know, it's there. So, you know, it's real. You're not guessing. You're not trying to like see if this is a problem or not. But also when you're talking to somebody about it, you can speak with deep conviction because you have felt that pain. And the other part, earn secrets, too, for us and for me personally, yeah, I was a VP of rev ops of three companies before stepping into the role. So I already had a network. I had worked with investors before they had seen my work at their portcos that helped us get into a lot of deals at the early stage.

9:36 And without that, it would have been very, very, very difficult to get that early traction. And from a personal experience, I had two kids when I started Lean Scale. So I had to make sure that, hey, this thing needs to make some revenue and get some traction before I quit my full time job and hop all time into this. So I also had that level of pressure where I need to get this working early. I can't take too much time to see if it kicks off later. Yeah. Well, that's a great example. That's a fantastic example of the visceral pain and clearly the positive impact and outcome as Lean Scale is just booming.

10:13 Well, I think that's an excellent just framework to think about the surfer and they can be out there. I mean, when you're earlier on, you do have time to pivot a little bit so you can take a look at what those waves are and adjust if you need to. And if you have the right surfer, I think you can really have confidence that when there's challenges, because there will be, they'll be able to figure it out. Definitely. And so if I were to actually stack rank them, then we went deep on the surfer, it would be the surfer first, the wave, and then the surfboard.

10:50 Though they all matter and they're synergistic from a replacement, you know, a wave can come at different frequencies, different times. It might take two years for the right wave to come, but if you don't have the right surfer in place, whether it's six months or 18 months down the line, they're not going to be able to surf. That's absolutely right. And sometimes these really good waves, like there's for a lot of people, the AI wave right now is maybe making certain things easier for them to be successful, at least in the early stage. So you might have some decent surfers that are carrying that wave, but those waves will come and go.

11:25 And will they be able to do this as a 10 year journey and, you know, keep up and follow the next wave and do this in a repeatable way? Because I remember when I started Lean Scale, some of the advice founders gave me is, you think it's hard now and you start, it only gets harder as you grow. Every stage just gets even more difficult. It doesn't get easier. And I remember thinking, wow, this is pretty hard right now, so I can't imagine it getting harder. But it's true. And so you have to have somebody who's resilient and make it through those next stages of growth and adapt as the markets change and they have new waves that they need to go catch.

12:02 A thousand percent. And that's where the lived experience and obsession comes in because it doesn't get easier. And so you need to have that level of obsession at the core or interest and passion behind the topic to keep going and keep persevering through. One hundred percent. Now, tell me about the surfboard. So if it looks like, hey, we have a decent wave, there's a lot of market backing going on right here, have a good surfer. They have the earned secrets. They have the experience. Now, when you're looking at the surfboard itself and you're looking at the product, you're looking at the company.

12:39 And I know I know you're focused pretty early stage, so sometimes you may not have all of these like amazing, repeatable metrics where you could just hop into their serum and figure out what's going on. But what what gives you some confidence that they're getting traction and what are some positive signals? You know, people always ask about revenue and revenue is nice, but it's not predictive. We'd rather see a hundred K from 10 deeply aligned customers who rave about your product than, you know, 500 K from more of a bit of a grab bag of unaligned logos.

13:16 In fact, sometimes we we take 10 design partners who aren't paying anything as long as they tell us, you know, they essentially die if your product went away over, say, a half million of looser revenue because that's more predictive of product market fit. And so, yes, revenue is always better. But like you said, we're quite early, you know, pre-seed oftentimes is pre-product and that seed it's the quality of the traction that matters more than the number.

13:44 There's a couple other non-tangible signals to, you know, revenue is always the big one people ask about, but other things that we look for enterprise validation when it makes sense for an enterprise motion. One of our portfolio companies, Atrix, for example, close to seven figure deal pre-fund rates. It's pretty compelling. Founder led sales is another one, of course. So can the founders sell the vision themselves? Usage and depth, usage, depth and retention.

14:13 So even if it's a small cohort, our users engage daily, weekly, monthly. And last, shipping velocity is a big one because there is a extremely strong correlation between great companies and speed of iteration. So fast shipping pretty much equals fast learning. And if a team is slow to ship early, it is a little bit of a concern. So when we see teams that are shipping quickly, it is indicative of them being able to move quickly and accordingly learn quickly.

14:44 So bottom line, I'd say, just to underpin it all, though, is, you know, actually, we're not we're not really asking a cute point. Like, how much revenue? We're really asking, does this traction predict that you'll find product market fit? Yeah, I love that. And I think some companies might not know, especially if they're starting out, especially if they're first time founders, how valuable some of those signals might be.

15:09 And just getting the confidence, hey, if your early customers are really excited about your product, if you're able to, I think that's a huge sign, if you're able to sell into an enterprise company, it's not easy for them to buy things. So if you're able to convince an enterprise customer to take a leap of faith on your product, I think that's a huge signal. And I do think all of those subjective things are really, really good early signs. And I love that you highlight shipping philosophy, because going back to what we were talking about earlier, it's only going to get harder.

15:42 It's only going to get harder for your product. And your customers are only going to demand more and be completely bombarded by your competitors every single day, showing their new approaches and new things that they're launching. And I think that velocity with AI in the mix is only going to become even more important. So before like these big monumental things that you could start to adapt your product to would come out, you know, every year, every two years.

16:11 Now it feels like there's a new thing that you can really get out of your product in a matter of months, like there's a new model to use, there's a new way to code that's different. There's a whole new ecosystem of things that you need to be integrating to or working with. It feels like to keep up, you have to be moving so much faster than companies before.

16:31 Absolutely. And at the early stage two, a lot of time you haven't built out your go to market. And so you're shipping on the product side, you've got a small go to market motion, maybe it's design partners, but your shipping velocity and the product save will be indicative of your ability to ship on the go to market side too.

16:49 It's just a holistic speed of execution that you have. And so it is helpful to be able to see can they execute at the highest level on the go to market side because ultimately tech modes are declining engineering is no longer the bottleneck like it used to be really the bottleneck now is going to be more of your grow to market strategy and execution. So that shipping velocity gives us confidence not only in the product iteration, which is incredibly, incredibly important, but also in their ability to execute on the go to market side as they grow in future.

17:17 Yeah, there's plenty of iteration to be happening there too. And that's exactly why we partner with companies because people, what I find, I find it funny sometimes, just because I've been in the problem for long enough, but like, okay, great. When my systems are all set up and done, like, then like, you guys will be gone and we'll be good to go forever. Not even close. Every single day, there's new tools that come out on the market that can help you get an edge. Every single day, there's something to iterate on your go to market. And the job is never done. And just like on the product side, it only gets harder and more difficult as you skip.

18:03 Exactly. I think you'll hear more and more, at least we hear more and more at the VC side and through our media, even is people's biggest regret was not investing in RevOps earlier. And so it is, you know, not something that you can implement and, you know, boom, Band-Aid fix six months later, don't need, it really is, this needs to be your foundation. It's the foundation that fuels your entire go to market strategy. And it's going to have to grow with your go to market strategy as you get new channels and everything. So we, we definitely lean pretty heavy on that side with our portfolio companies.

18:36 Yeah, I'd love to hear it. And the ones that that do really well, you're maximizing future investment opportunities, you're maximizing your growth, you're maximizing your decision making ability. So I think making the right calls and then just having the visibility, it makes all the difference when you're on that journey. Absolutely. So we talked a lot about positive things, positive signals that you see. And I know you're probably talking to hundreds and hundreds of companies and hearing ideas all the time meeting with new founders all the time.

19:11 What are some red flags when you're in the process and you're working with a founder, you're running the process, what are some big major red flags that you run into that maybe make you question doing a deal or not? You're not a red flag, but more of a preface to the red flags. And I'll get into the specifics. But is that overall process is a signal. And if you don't run your process well there can be red flags in there. Because how you run your fundraise is indicative of how you'll run your company. So if a founder is unorganized or unresponsive during the fundraise, that that's a bad sign for us at least that gives us a little bit of unease.

19:53 Because fundraising is just go-to-market pointed at investors. The best founders run it like a sales process, you know, they build a target investor list, they map worm intros and champions and tailor their pitches to different firms decision processes. They run discipline funnels from intro to close, they get it, they run the process just like their go-to-market execution. So when we watch a company's or a founder's process, we're not just evaluating them. We're also seeing how they run a sales, a partnerships, a customer acquisition process.

20:28 That's really, really enlightening. I don't think I've ever really thought of it that way. But showing showing how they run the process as a huge signal of how they run go-to-market and showing what the future of that go-to-market motion would or could look like. Not only is it potentially making the process difficult, but also shedding light on everything else. I don't know if a lot of founders are going into their processes thinking of it that way. Like, hey, this is an opportunity to show off how I'm going to do everything at our company.

21:02 I don't know. I don't know if they do. I don't think so either. But it's definitely one of the biggest pieces of advice we would recommend to anyone. A lot of people run it incredibly well, and some people could use some tightening up in areas. But overall, it is such a fundamental important part of the process. So that can have some red flags in it. It doesn't necessarily is more of, I would say, the overall most important part of thinking about red flags because that is your entire end-to-end process.

21:34 Now, there's areas within that process that can give red flags. Negative references, of course. Back-channeling uncovers a lot. It's a huge, huge channel. An important factor, like I mentioned earlier, for early stage in particular, just gives us that data set on somebody in their lived experience. And if prior colleagues consistently flag concerns, it is a little bit tougher to ignore that. The others are, again, a little bit more obvious things, if you will, but really important things and things that we still see all the time.

22:05 So bridge burning in the industry. The venture ecosystem is this small. And even if you're right, it is rarely worth burning bridges. So aggressiveness, completely fine. But overplaying your hand. So, for example, expressing that you need an answer by a certain date, like a really short date, Friday, for example, is usually obvious if it's not true because it can easily be back-channeled and everyone on the venture ecosystem is in talks and coordinating together. So that would be one area. And then the last one is, of course, rapport. One of the most important things.

22:39 We at least view this as a 10-plus-year relationship. And if we don't like each other or you don't like me or us, the partnership won't work as well. And so chemistry and mutual respect really matter. Yeah, and I have seen that play out. So I won't name any names or try to give any insights, but I have worked with some VCs where it felt like, hey, we're really, really strong partners. I felt like I completely unlocked perspectives and learned a ton. And they helped me skip roadblocks and skip potholes and just had added tremendous value.

23:15 And then other ones where I felt like it was a chore to work together. And I don't know, maybe they felt that way about me too. So that's okay. But I think just that rapport is more important than I think some people might realize because this could turn into an incredible partnership that unlocks your future growth stages. Having those advisors there for your next round of funding, for running an exit process, you want to have people in your corner when it matters most and people that you trust. So sometimes like indexing towards other aspects of the partnership, but not having that part dialed in, I think can be a big miss.

23:57 Definitely. And same goes for hiring internally, right? The extent that you have a cohesive relationship with anyone that you're building with, especially at that early stage, your co-founder, same thing with your investors. Kind of think of them at the early stage, like your co-founders, they're in the trenches with you, you know, they are on your team. And so that relationship is just incredibly important. Yeah. And I love bridge burning, negative references, like just be a good human. Go take care of people. That's what it all boils down to.

24:28 It's going to go out. People want to work with people of high integrity. And of course, you're going to have to make tough decisions. You're going to have to, people will need to get fired. You'll have to break partnerships. You'll have to do that. But always try to do it in a way that keeps your integrity high and, you know, leaves doors open as needed. Definitely. I've been learning a ton on this whole conversation. I know everybody listening is going to be learning a ton as well. And your perspective is just really insightful.

24:57 I always love just figuring out where people came from. So I'd love to hear how you got into the type of work that you're doing, what attracts you to it, what you find exciting about it, and just the quick story of Sophie. Yeah. Yeah. Happy to share. You've got a little slice of Vancouver here behind me. So that's where I'm from. Love Vancouver. Yeah. Nice sunny day for us. But spent a couple years living abroad in Europe and came back to Vancouver a few years ago, though we're often on the road, just being a US fund and we invest globally.

25:32 But growing up here in Vancouver, I played competitive soccer. And what I kind of realized through that was it wasn't actually the sport itself that drove me. It was really the process. And I realized that after leaving and just getting so interested, curious about many other things and being the only one not playing soccer anymore and things like that. But a coach once told me fall in love with the process. And that stuck with me. That idea of just getting 1% better every day of embracing the journey more than the outcome, that's something that I've applied to everything in my life.

26:10 And that perspective has helped me see patterns of what I was naturally drawn to and what I was borderline obsessive about. And there's three things innovation, education and community. And so I've explored each of these in different ways over the years, you know, working with tech companies that are pushing the boundaries of innovation. I joined a startup incubator, spent a couple years, close to a decade actually involved in global education, nonprofit.

26:34 Even things like cultivating community locally through, you know, group dinners and hikes. All of these threads might look nonlinear on the surface, but together they really shaped a path that led me here and to our conversation today. And to where I am in the venture ecosystem with GTM Fund and our media brand GTM Now, because those are right at the intersection of the three things that I've always been drawn to.

26:59 They're the anchors, innovation, education and community. So innovation now, you know, we get to help founders as they push the boundaries of technology. On the education side, we're building GTM Now, it's our media brand, which makes insights accessible to anyone, anywhere in the world, similar to what you're doing with your incredible YouTube channel. And finally, community, right? We're cultivating a network of over 350 of the best staff leaders in the world as LPs and another ecosystem of go to market operators and founders and investors who subscribe to our content.

27:30 So there is, you know, those three areas have all converged into one role, which is pretty cool. And I like to think of life, not as a straight line, but more as a triangle in terms of the areas of interest for anyone. And I say life because the things in your triangle, they may be career entered, but they might not. Regardless, they're just life. And so I call it a guiding triangulation framework whenever I'm, you know, helping and coaching anyone, though it can probably use the catch your name. And it just simply starts with reflecting. So asking yourself, what are the things you're coming back to with curiosity?

28:07 What's consistently energizing you or bringing joy and just writing those down, looking for patterns. And, you know, there might be things like creating a digital community of go to market professionals or a media channel like you are, right? And hosting quarterly dinners, super different, different audiences, but both are rooted in community at the core. So through that exercise, you'll kind of see the acres for yourself and those those forces that just keep pulling you back again and again, no matter what stage you're in.

28:38 And so for me, those are innovation, education, and community. And anyone's might be completely different, but it's been a really cool guiding principle for me to find what is fulfilling at the deepest level and a role now that sits right at the middle of all three of those areas. I love it. And, you know, when you're in the right spot and you feel everything clicking. It's like magic is happening work is easy life is easy. Because the things that you enjoy doing are naturally adding value, everyone around you and it's just, it's a really good synergy.

29:13 For some people I've gone through seasons of this in the past two, if you feel like, hey, work is just a chore every day or it's really tough. Now, I feel like I'm putting in so much more effort, but not moving mountains as much as I feel like I should be. Then, yeah, going back to your triangle and seeing like what you're interested in. I think it's a great framework to be thinking about it because everybody has a uniqueness. And when you can get that uniqueness in a place that also creates value, it's a really beautiful thing. Absolutely.

29:44 Well, Sophie, this has been awesome. Thank you so much. Just to recap, when you're out in the market, you're talking to hundreds and hundreds of startups and founders every single day. And I love the metaphor of the wave, the surfer, the surfboard, making sure you have market momentum, making sure you have a founder that has the earned secrets. I think that's probably the favorite thing that I've pulled from this talk today. And then the surfboard is just ready there to catch the wave and then catch the ride. I think a lot of what you're mentioning too about, hey, what does that early traction look like?

30:23 It's not always revenue. It doesn't always show up exactly like that. But if you have equal revenue, but this population over here, your customers are just absolute evangelists of your product. You have people saying that they just couldn't survive without what you're doing. You're shipping iterations at a high velocity. That's what traction really looks like and can be more predictive. And I think that's a really good framework for any founder that's listening to this or anybody who's working at a startup, making sure you're focused on those things. Your product, your customers, how are you doing everything you can to add the most value?

30:58 And also, I have to say, go to market fund is everywhere. And I've only heard good things from any of your portcos, from any of the LPs, which is a really unique thing. Like having actual people in the trenches and go to market being LPs in the fund. So they have such an incentive to just give all their expertise and shared experience to your portcos. That's unbelievably valuable. There's so much that I wish I would have had or been able to tap into earlier in my career. And I just love the mission you guys have and how you're approaching taking your portcos to the next level.

31:35 So if anyone's listening who's looking for a partner, I would definitely check out GTM fund. I think they're incredible. And, of course, Sophie, what's the best way to get in touch with you? The best way to get in touch is through LinkedIn. It's free to shoot me a note, happy to help, jump a call, answer any kind of questions. And overall, Anthony, really appreciate the conversation. I appreciate all that you do in the ecosystem on the venture side for us, where our VC partner is just incredible. And like I said, robots is people's biggest regret later on. So we're trying to help people understand the importance of it earlier and earlier.

32:10 You've been a great partner on it. Preventing regrets. That's what we're here doing here at Leanscale. Awesome. Well, thank you so much, Sophie. Appreciate you doing this. And can't wait to catch up soon. Thank you, Anthony.