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  • Writer's pictureYannick Oswald

The 3 questions you must answer

Updated: Jul 13, 2021

Since I am a venture investor, many people ask me: 'Hey Yannick, what do you think? Is this a good startup idea?'

There is no good or bad idea.

My answer usually is that it doesn't matter if I think it is a good or bad idea. The only thing that matters is that they believe it is good. It is their time they would invest in it, and they have to believe in their idea or nobody else ever will...

Once I am certain that they got this, I usually share my thoughts. I love discussing business ideas. I think that most successful businesses have some key patterns in common, and I can spend hours connecting the dots between them to predict the potential outcome of a new venture. Actually, this is also the reason why I prefer being an investor rather than an operator. Schwarzman, the founder of Blackstone, has a nice take on it: 'I believe a startup idea has to pass three tests: First, your idea has to be big enough to justify devoting your life to it. Make sure it has the potential to be huge. Second, it should be unique. When people see what you are offering, they should say to themselves, 'My gosh, I need this. I've been waiting for this. This really appeals to me.' Without that 'aha!', you are wasting your time. Third, your timing must be right. The world actually doesn't like pioneers, so if you are too early, your risk of failure is high. The market you are targeting should be lifting off with enough momentum to help make you successful.' Then you have to be ready for the pain. No entrepreneur anticipates or wants pain, but pain is the reality of starting something new. It is unavoidable...'

There are the VC-backable ideas and then there are other startups...

What people really want to ask me though is: ‘What do you think, is this an idea that VCs would like to invest in?’ Let’s have a look at an example. Both, a thriving bakery in an underserved area and a software business for a niche market, can be great businesses generating nice, recurring revenues with a loyal customer base - making everyone involved wealthy. They are cool startup ideas - but no VCs will probably invest in them. My friend Gale put it well:

The early-stage VC model is such that you need to invest in and help build companies that can become big, really big - meaning 100M+ in revenues in 5-10 years from launch. There are only a few businesses that have the characteristics to hit such a growth trajectory. A great bakery shop might generate 1M+ per year. So, one could argue that you just have to open up 80-100 of them, and you have your venture backable business. The challenge is that it is a slow and capital-intensive process with a relatively weak competitive moat, limited network effects.

The beauty of tech businesses is that, IF they work out, they are incredibly scalable, and you can do it quickly. They are also much riskier. Let's always remember - there are no free lunches... So, most businesses are not VC backable – they are businesses with solid fundamentals but without the growth profile VCs are looking for. Both business types are great; they are just very different. More on the VC model you can find in this post I wrote earlier this year.

The 3 questions you must answer.

To identify these business models, I like to ask myself and the entrepreneurs I meet the following 3 questions:

VC businesses usually change the status quo fundamentally (disrupt it), building a new model that makes the existing model obsolete.' When you found the special insight of one of these opportunities (more on insights here), you usually found something that is not obvious to the world. Therefore, discussing these three questions with entrepreneurs helps me understand their insight, their vision, and build conviction, or not, around the growth potential of a business.

Why Now? Why wasn’t this possible before? As I mentioned in this post, the insight is often based on the inflection of new technology and/or the adoption inflection of an existing technology or product format. In both cases, it is something that is not easy to see. Therefore, it is also difficult to explain such a trend. Try hard to find an easy and short way to do so – leverage data, analogies, real-life examples, etc., whatever is easy to understand and wow people. If you can scale it with tech, VCs will want to learn more about it.

Is there a big enough need for this product? Can you make a compelling case that many people want to use the product? Here some examples: (1) take an existing need and market, and explain why a tech-first product will provide at least a 10x better experience (think Skype, Uber, Spotify, Sybel) (2) take a big existing challenge and explain how a tech product can solve it, in a much better than what exists out there now (think Trustpilot, Twilio, Stripe), and, (3) finally, the toughest one – explain why there is a consumer need, but in a new market (think Airbnb). Investors are always a bit more skeptical of these last ones as they have to really believe in your vision - you are essentially building something no one has cracked or thought of yet…

Can you prove it? As mentioned above, always pitch a compelling case backed by as many tangible facts as possible. You rarely meet an investor that already has a ‘prepared mind’, meaning with a firm conviction around the challenge you are solving.

So, before reaching out to VCs, ask yourself these three questions. It is easy to fall in love with ideas that are good, but not great. Let’s also make sure we are honest with ourselves. Here more elements on what VCs are looking for at every stage.

I don't know.

When I first meet founders, I do not expect them to have all the answers to my questions. But I do want them to have clear answers to the 3 questions above. I just don’t accept an ‘I don’t know' as an answer. It tells me that the founders haven't thought enough about the ‘why’ behind their business. It is not a great start.

I also believe founders must be knowledgeable about all the details and aspects of their internal operations. They should have those answers on the tip of their tongues. That includes things like a product roadmap, monthly burn, cash balance, headcount, etc. For more, check out this overview of the 5 things that make for a compelling VC case – the ‘package’.

Be honest.

Whatever you do, do not lie. 99% of people are bad liars, and VCs can sniff it when you bullshit them. When you talk to so many entrepreneurs every week, you develop a kind of lie detector, a sixth sense. It so much better not knowing than lying. You can always go back to someone, except when you lied to them. The hardest thing in life is to gain someone’s trust – if it is lost, it is nearly impossible to gain it back.

Be polite... and move on.

It is in the very nature of a crazy startup idea that most people do not believe in it, or just don't get it – VCs included. I would even argue, the better, more transformational an idea, the more passes a founder will get. So, repeat after me: 'do not get upset if someone passes on your idea.' It is part of the VC game, and if you have the right mindset, you will take a lot out of the fundraising process.

My advice: 'Do your best, and let it go.' Sometimes, investors ask such ridiculous questions that you really have to bite your tongue, be polite, and explain calmly. You don’t need to have all of the answers in a pitch meeting to be successful. But you do need to be polite and respectful if you want to secure the funding. There is really no upside to arguing with potential investors.

I show deals we are have invested in to other VCs often. And when they turn us down, I still get unhappy. It hurts. How can you not love my kids when I love them so much? But, when you get a 'no', you have to take it with class. You need to thank the investor for taking a look. You need to keep the relationship intact for the next time you want to raise money. It is hard to take a hit and not hit back. But you have to do it.

I always make myself feel better by saying to myself, ‘this deal will be huge, and the best revenge will be when they are kicking themselves for saying no.’ That makes it a lot easier to write that polite reply.

Last weekend I was at the wedding of two good friends in Bordeaux, France. Below a pic of the venue before the festivities started. Bordeaux is such a magical place with an extraordinary culture, fantastic venues, weather, and excellent wine... of course. The startup ecosystem has also developed very well over the last couple of years. I expect more French entrepreneurs to be based in this region in the next years. I recommend that you visit the next time you are in the Hexagone.

Life is awesome,


Other content I have found useful

- Last week, our company Sybel released, in partnership with The Walt Disney Company, the audio version of more than 50 famous Disney and Pixar titles - from the Lion King, Cars to The Jungle Book... This confirms Disney's belief in the big future of audio entertainment and Sybel's leadership position in the world of audio entertainment. This is big - Congrats to the entire Sybel team.

- Nike's mobile pivot. Nike’s mobile apps have helped to fuel sales growth during the pandemic as part of the sportswear giant’s effort to boost direct-to-consumer (DTC) sales. The company’s digital revenue jumped 84% in the quarter ended Nov. 30. While Nike didn’t provide exact figures, it reported a 9% gain in total revenue to $11.2 billion. Digital sales will make up about half (!) of total revenue in the near future, the company forecasts.



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