Founder Reference calls: Unlocking the buried treasure
Reference calls are an incredibly useful source of information. They can result in everything from “I’d never work with this person again” to “I’d invest in anything this person is doing.”
Below is an outline of my approach to these calls in the hopes of sharing what I’ve learned and soliciting feedback as to what I could improve. I’m hopeful that it’s useful for anyone doing reference calls, but I’ve focused it on reference calls on founders since that’s what we usually do prior to making an investment. On the flip side, this post should be a heads up to founders on what investors are going to ask about when they conduct reference calls.
Setting the context. In any reference call, it’s important to be mindful about the person’s time. Schedule the call for 20 minutes, both because the task shouldn’t require a full 30 minutes, and it’s a way to put the person on notice that the call will be efficient. The calls tend to take only 15 minutes, but build in an additional 5 for the inevitable delay in getting connected.
I try and start the call with a brief but energetic introduction explaining who I am and why I’m calling. The reference is sharing her time with me and an enthusiastic and quick beginning sets the tone that I’m going to be efficient. We only do reference calls on 10% of the companies we meet so, I let the reference know we already think highly of the person about whom I’m calling. I do this to lessen the negative signal if we decide not to invest.
The questions: The following six questions are the framework for the call.
The softball: How do you know the person?
- This sets the context of the conversation. It obviously makes a big difference whether the founder was the person’s peer, direct report or boss. It’s also an interesting tell about whom the founder suggests as her references (a bit more about that below). Starting with this question is helpful because it is easy and it gets the reference talking.
A little harder question: What is the founder’s super power?
- Obviously, the goal is to figure out what makes the founder tick. Particularly in venture, given power law returns, we’d prefer founders where the answer to this is obvious. “He’s an amazing strategist” or “she’s a great leader that I’d follow into battle” is a lot better answer than “hmmm, well he’s good at everything.”
Allegedly hard question. What’s the founder’s weakness?
- This question has been teed up with the previous question so the reference should know it’s coming. We are certainly not looking for perfect founders, so we expect to get some answer here. When one is not forthcoming, it frankly undermines the veracity of the person giving the reference. Another way to get at this could be “do you know in a recent performance review, what feedback did the person get on things to work on?”
Many of the most successful founders have weaknesses that they acknowledge and compensate for by surrounding themselves with the right people. In my case, marketing is not one of my talents. For example, I once suggested that Jack Dorsey call his company “Vole,” an animal that is a mole’s uglier cousin. Fortunately, he disregarded my advice and called the company Square. It’s no coincidence that my partner Aileen is amazing at this as I’ve tried to compensate by partnering with complementary people.
The question. It depends.
- So there’s usually something we really want to understand about the founder that we’ve picked up in our interactions. Now the reference is talking and in a mindset that it’s OK to share something negative, it’s the best time to ask about that.
For example, there was a founder who seemed really smart and hard working, but had a hard time communicating verbally. This seemed like a real challenge for selling, recruiting, leading and many other key activities that he was seeking to do as the CEO. I asked two people for whom he had worked about his ability to communicate, and both agreed that this was a challenge, though neither had mentioned it as his weakness.
The necessary question Are there any ethical or behavior issues to be aware of?
- Usually this is a very quick no, but there have been more than one reference who has raised concerns. For us this is a fundamental issue for reasons that shouldn’t require elaboration. Anything but a very fast “no” should be a warning sign.
Columbo special Anything else I should have asked?
- I learned this question from Aileen and I think it’s quite clever. The reference knows a lot that I don’t about the founder and, while most times the answer is no, I have found some useful nuggets of information emerge in response to this question.
Pay it forward. Conclude the call by thanking the person for her time and offering to return the favor. It’s truly amazing how many people have been willing to spend their time to talk about their former colleagues. This information has proven to be incredibly valuable and I hope to be able to return the favor someday.
Other considerations. A few other things can make for an effective call:
Don’t talk too much: Remember that your goal is to get information. After my preliminary burst introduction, I try to only ask questions. A learning from my lawyering days is not to be afraid of silence. It’s uncomfortable, but it gives the reference space to talk more..
Go with the flow: Sometimes things take an unexpected turn. If there’s a useful story that will give you true insight into a founder, go down that path.
Do off list references: When we decide to dig in, we tell founders we will be reaching into our own networks to find out more about them. We expect the founder’s handpicked references to be relatively positive, but founders should expect venture folks to call someone from their last places of employment.
Understand what you are asking about: We are not actually expecting to get uniformly positive feedback. Many great founders have a disagreeable streak. If we get a reference that says, “she’s super smart, but she is just really stubborn” that’s actually a good thing. It’s our job to make the judgment as to whether the person will be a good founder.
The buried treasure. It’s a well worn trope that seed investing is all about the people. While you can get a good sense of a founder by spending some time with the person, it always helps to get to know the person better by talking with people who have worked with her over many years. Calling this information buried treasure may border on being clickbait, but a methodical reference call done by a prepared investor can unearth real value. And we welcome and expect the same from founders when they are considering working with us — founders should know what they are getting into before they get hitched with an investor.
I welcome any feedback about how I can do a better job at reference checking — and would love to hear any favorite reference questions that are your own “Columbo special.”