28. The Investment Readiness Level (Steve Blank)

Due Diligence Podcast DownloadNick Moran Angel List

Steve Blank joins Nick on The Full Ratchet to discuss the Investment Readiness Level, IRL, including:

  • Steve Blank Investment Readiness LevelHow have incubator and accelerator investors traditionally evaluated startups & what’s changed that provides an opportunity for a much better approach?
  • You talk about how the focus for startups should shift to evidence and trajectory across the business model.  And now startup Demo Day has shifted to “Lessons Learned” day.  What’s the key message here?
  • You’ve cited Moneyball and even NASA as inspiration for the Investment Readiness Level.  Can you tell us more about the origin of the IRL?
  • What are the main elements of the Investment Readiness Level?
  • Can you walk us through an example of how an investor would use the data There are going to be startups that are not familiar with the Investment Readiness Level…   how can Angels and VCs still use it to help them evaluate and make investment decisions?

Itunes:  http://bit.ly/1wQOYgI

Direct-audio:  http://bit.ly/1z9FCzK

SoundCloud:  http://bit.ly/1ImnEhu

Guest Links:

Key Takeaways:


1- Faith vs. Fact

We spent a great deal of time on today’s program discussing customer development and testing.  Steve articulated that this process can turn a faith-based company into a fact-based company very quickly.  While a hypothesis is important it needs to be disproven or adapted in a way that creates a viable business opportunity.  Do founder’s need to have optimism… absolutely.  Just insure that this optimism is based on facts and not hope.
2- The Snapshot
Recall Steve’s comments about seeing a startup pitch and how you are only seeing one snapshot of a startup.  This does not give the investor a true sense of the founder’s ability to learn, adapt and pivot for success.  What’s more important than the current state is the progression of a startup as they proceed w/ early development and the customer testing process.  This reveals those startups that obsessively pursue solutions to serve their customer market best.
3- Industry Specific Readiness
IRL is specific to each industry.  The most important factors in determining investment readiness will be different for different verticals.  As Steve mentioned, in many markets product-market fit is the most critical element.  In others regulation trumps all.  This, in a sense, is another endorsement for focusing on certain sectors… or co-investing w/ those that intimately understand the sector at-hand.


Tip of the Week:   Founders don’t have to be Oracles