E425: What 30,000 Founders Taught Me About AI, Judgment & Top Founders

How I Invest with David Weisburd

In this episode of 'How I Invest,' David Weisburd sits down with Byron Ling of Twelve Below to explore the intangible qualities that make except

Key takeaways

• The most successful founders aren't defined by resumes but by deep, intrinsic motivation and authenticity.
• Second-level thinking—understanding market dynamics beyond surface metrics—is a critical differentiator among top founders.

Main topics

• Traits of top-tier startup founders
• Second-level thinking in venture investing

Notable quotes

"You almost want to feel intimidated by the individual and what they're trying to prove to the world."

"I've earned the right to this insight. I've cold called 600 customers in the last month."

Conclusion

Byron Ling emphasizes that the best founders are defined not by their credentials but by an unrelenting drive, deep market

Transcript preview

Speaker 1 (0:00) Many investors just focus on pedigree. They focus on, did you go to the right schools? Did you go to the right companies? Did you have the right titles? And we think those can be important, but really focusing on, do they have a execute differently in their life? The best founders are inherently very authentic and you feel that. And this is part of why are they doing this? You actually don't have to ask why that many times because they're going to be such clear articulators of why they're doing this and why they're probably the only person in the world that would do this. Speaker 1 (0:28) Byron, what do you look for in a founder outside of intelligence, pedigree, or early traction? What I'm really looking for is a set of traits that don't show up in a resume, but they're going to make a founder impossible to compete against with. And so things like pedigree all can amplify those traits, but without these traits, we're less likely to get conviction. So we look for an unbelievable chip on their shoulder. It's almost like a biological level drive. Speaker 1 (0:55) You almost want to feel intimidated by the individual and what they're trying to prove to the world. The other thing we really think about, I kind of borrowed this from Howard Marks, is really a level of second degree, second level thinking. And so are they thinking deeper about the market than just the surface level size and growth? And what we find is people who have been historians of the markets they're going after, they can talk about how market share has been won or lost over many years. Some of the other ones we think about. Speaker 1 (1:23) are incredible storytellers. We think if you're going to go on this journey that's going to look impossible, you have to marshal capital and talent very early. And so how someone communicates the clarity of their thinking really matters. And the last one is both observed but also felt, which is do they have this incredible sense of urgency? Is it almost as if they're getting so much done in 24 hours that they're going to be hard to compete against? Speaker 1 (1:48) The sum of it all is you never really know the degree of every single trait. But when you spend enough time with someone, that's how we get to conviction. And what you're trying to see is do they have a pattern of just leading with excellence across their life? I want to get to all those traits later on. But second order thinking, it's an unusual trait. How do you figure out whether someone's able to think about the market? I borrowed this from an essay Howard Marks wrote years ago, which is... Speaker 1 (2:17) First level thinking is really sort of if a stock price drops, everyone assumes you should sell the stock, where second order thinking forces you to say, well, what do you believe and what do you believe relative to the market? And so a lot of the focus on these traits is going back to your original question. Many investors just focus on pedigree. They focus on did you go to the right schools? Did you go to the right companies? Did you have the right titles? And we think those can be important, but really focusing on. Speaker 1 (2:45) Do they have they executed differently in their life? And so going back to second level thinking, I want to go deep around what do they know about the market? Have they gone through the history of the market? Many founders will just say it's a big market. I've talked to a couple of customers in the space. It's growing. And I think that's OK, but it's probably not excellent. What we find is the excellent entrepreneurs have become obsessed about the market. Sometimes that's through professional experience. In many cases, it's just from hard work and research. And so. Speaker 1 (3:14) The responses that we prefer to hear are, I've earned the right to this insight. I've cold called 600 customers in the last month, and I've earned the right to this insight that no one else will have except for me. Reminds me of previous guest, Baljit Srinivasan, talks about this idea maze, this long and winding road that founders get to figuring out what their business is and what their right to win is through just years and years of suffering. One of the sort of clues around that are they very inward focused, meaning. Speaker 1 (3:42) Are they pursuing this mission because they're authentically tied to it? And what you find is that if building a company is going to be a series of small decisions and big decisions, do they approach these decisions as a hypothesis that they want to validate? Or are they constantly pursuing the decision based on what they want to see? And I think that's a big difference between founders very early is many of them are willing to say, I actually don't know what the answer will be, but here's how I'm going to test it. And so I think that's kind of when we probe really deep on their thinking, you start to. Speaker 1 (4:11) pick away at how deep have they thought about the problem? And more importantly, how are they going to run experiments over the course of the company? There's a bit of a paradox, and this is going back to my startup days. And I knew that it was time to start a business. If I was so obsessed, I couldn't get out of my head. It's not something that I wanted to do. It's almost like I had to rid this thing from my head. And some of the best companies, if you just ran this kind of hypothesis, I'm a scientist looking to validate A, B, and C. If A and B was invalidated, you might go on to another business. But if you're just so obsessed, you're going to find new ways to bring the company forward. It sounds like you had that sort of innate level of drive and connection to the problem. And I think you can explore this pretty quickly because you just go deep with the founder. You kind of push them. Speaker 1 (5:00) over the course of several meetings. And sometimes that's in person, sometimes that's on the phone. And so what you're trying to build, I feel like this is the job as early stage investors, is how do you generate alpha different from the market? One of the things we always try to do is how do you assemble that picture of all these traits? And I think what you're getting at is can you really break down their drive and obsession? And I think the second level thinking component is just one facet of it. But that comes through in the responses. It comes through. Speaker 1 (5:26) in the work behind the answer. And how do you fit that obsessive drive with this hypothesis thinking? Drive is somewhat next to, but adjacent to what you're describing. So drive is, I'm going to prove this to the world. It could be something shaped from a young age that I have to prove to the world. It may not necessarily be tied to the specific problem. But I think being obsessive about the problem and having a hypothesis-driven sort of approach to solving it. Speaker 1 (5:55) is another ingredient you have to have. Big picture, I'm going to chew glass to get this done, but I'm also going to do it in a thoughtful way. And I'm not going to just run into a wall and bang my head against the wall. And I think those are the two dichotomies that you have to have, both like big picture vision and drive, but also the ability to problem solve in the right way. You mentioned one of your factors was a sense of urgency. You have to have the sense of urgency, but also this patience on the outcome and being focused on the long-term. How do founders marry those two concepts? You probably felt this as a founder, but it's your commitment to this 20 year view. But in the minute, day by day, you're constantly chewing glass, you're being told no, and you just have to balance those two things. Speaker 1 (6:38) I really think it's one of the things you learn, though, as you're starting to spend time with the founder is how do they approach all their decisions? And I think that's one of the things you're trying to understand is are they thoughtful behind decisions? Do they make decisions quickly? Do they choose to change course or pivot or whatever the situation is at hand? That's sort of the sum of what you want to figure out very quickly before really leaning in. Guest Nico Benatzis, who ran General Catalyst's SEED program for close to 15 years. Speaker 1 (7:07) He called these people freaks, these people that every time he talked to, they had worked so much on a business that they had changed their mind and just made so much progress, sometimes within three days of talking to him. I love that. We don't use the term freaks, but I do remember that term. I think it's you're trying to find rate of learning. I think it's a felt sense. And one of the beauties of spending time in person over the course of several days is similar to Nico's point. You can kind of see. Speaker 1 (7:35) Did they listen to a comment you made? One of the things I'll try to do early on is it may not be give feedback, but to push on an assumption and then maybe try something where we push their ambition a little bit and say, you thought this company could be here, but like, what if it could be bigger? And a lot of that is a test to see how do they respond to feedback, but also are they generative? Do they process all that information? Speaker 1 (7:58) greed or not? And do they come back? And you see the difference between the founders who just have this incredible rate of learning. And the reason we care about is it's a competitive advantage. Someone who's just going to learn more and is going to get done more faster in a day versus someone else is going to be a competitive advantage that's going to be hard to keep up with. You mentioned another term, storytelling. That's one of the most overused terms right up there with contrarian. What does that really mean? How do you distill that? Storytelling, I agree with you. Speaker 1 (8:26) Commonly used, I think it's more about building trust, but communicating effectively. And I think one thing we've realized is that some people can develop great storytelling. This comes back to it's a skill, but one of the nuances, we're not looking for all these traits at 100 percent. Like that would be a checklist model. And I think in early stage investing, it's very hard to have a checklist. I think the best investments actually come. when you break your own rules because you're uncertain and you're breaking your own rules relative to the market. But storytelling is, I think you can get a felt sense of someone's arc of becoming a great storyteller through the way they write, the way they communicate. Speaker 1 (9:03) Even just interactions in person. How do they greet other people? Observing all these things helps give you a picture of that. So it's not to say everyone we back is an incredible storyteller, but I think we want to see the ingredients of can they write clearly? One of the things I love doing is actually, as we're going deeper with a company, really analyzing their writing. Speaker 1 (9:25) and really trying to think about how did they choose the words in this response? How did they think about the response? When did they write the response? It's almost like you're trying to be multimodal. You're like trying to collect all these data points from phone calls, from Zooms, from in-persons, from a meal, and then synthesizing that all together and saying, okay, how do we think this individual is going to be over the course of 10 or 15 years? How much of this needs to be in-person? Three-dimensional needs to be experienced three-dimensionally versus behind a Zoom background. I definitely prefer in-person. Speaker 1 (9:54) After COVID, Zoom has come to offer a place the first meeting. It is more efficient in some ways, but I think the best founders and investors want to meet in person. Everything in person is way better, especially because you're going to go on these journeys for 10 to 20 years. If you think about it, you may want to put the effort in to get a great partner, and that goes for both ways. So I think in person is far superior. I also think it's how... Speaker 1 (10:18) Your job is not just to analyze, but to also build trust both ways. And so I think if you're trying to have what feels like more of a conversation as opposed to a pitch meeting, in person is you can't beat it. And also the other thing you care about is can the individual generate energy? Like that is something on a Zoom screen you can get a felt sense for, but it's no comparison to someone walking up and saying, hold on, we're going to whiteboard together, right? You just can't get that. And so I just think you get so much more surface area around the individual. Speaker 1 (10:46) You look at somebody's writing, not just their writing, their sub stack, but their emails, their cadence. What are some things that you're looking for there? I'm looking for the clarity of thought. And what you're trying to find is oftentimes we're investing really early when there's very little of the company around and maybe the market's very unknown. And so I'm trying to see, do they have clear thinking about what they want to do? Speaker 1 (11:10) They have clarity around how they're going to approach solving questions. We don't expect them to have all the answers. I have gravitated towards founders where they're extremely clear thinkers, often from a young age. And when faced with a bunch of questions, including many that are unknown, they're able to write in a really coherent way that is both convincing but also humble. And I think that's what we're looking for. We're not looking for a specific answer because I suspect you're going to learn along the way as opposed to knowing all the answers. Speaker 1 (11:39) It's like taking a position, but also be open to changing that. I actually really love it when they truly just say, I actually don't know. And there's two things that can happen. They'll say, I'm actually going to go figure that out. I want to come back to you in five hours and tell you. But I would say the more common thing is it's okay if they don't know. I want to hear how they're going to approach the problem. They will inevitably face all these product and customer problems that they have to solve. Which we're trying to do at the earliest stages is say, how good of a problem solver are you? And I think communication is a big part of that. Speaker 1 (12:10) One of the things that's coming up over and over between the GP and LP layer is this authenticity and vulnerability and really getting to know you because LPs are going to be invested in you for at least 10 years. Here you could argue it's a similar timeline. Is that also a great leading indicator when a founder is just very authentic with why they're doing something, even if not every part of the story may be the most flattering thing about themselves? Yeah. Speaker 1 (12:37) One of the things you want to do is get the founder to trust you. And I think a lot of that comes down to how do you conduct the first meeting in a way where it's not putting them on the stand. It's actually, why don't we just go have a conversation and can we find the truth together around what you're doing? The best founders are inherently very authentic and you feel that. And this is part of why are they doing this? You actually don't actually have to ask why that many times because. Speaker 1 (13:02) They're going to be such clear articulators of why they're doing this and why they're probably the only person in the world that would do this otherwise. When you go on these journeys, you're going to be with them. I think about the cap table as like a living room. It's like people move in, they rarely move out. And I use that expression oftentimes with founders that we're starting to go deeper with because we want them to feel like they can learn about us. And it's not a one-way road. It's a two-way partnership. Getting to authenticity quickly and then figuring out. Speaker 1 (13:31) Do you work well together? It's very hard if people are trying to put a facade on and just trying to raise money. What we find is you want to get to the authentic purpose really quickly. Everyone I talked to on the show is chasing the same thing, an edge. And more and more, the edge comes down to your information, not just having it, but being able to trust it when the stakes are highest. AI is doing more of the information gathering for you every day, and most tools are very good at sounding right. The summary reads clean, but can you trace it back to the filing, the transcript, the specific passage? Speaker 1 (14:00) that drove the answer? Or are you just trusting the confidence of the output? For investors, that's not a minor concern. A missed filing, a misweighted source, a context that got lost somewhere in the retrieval chain, those aren't edge cases, they're how decisions go wrong. AlphaSense is the AI market intelligence platform built specifically for this. They own the content, over 500 million curated documents from broker research and expert transcripts to filings and earning calls, and they own the retrieval layer on top of it. Speaker 1 (14:29) So every answer links back to an exact verifiable source because the answer is only as good as what's underneath it. And with AlphaSense, you know exactly