The Ledger
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Polovets: Evaluating startup technology and CTOs at seed is a waste
“I spent most of my time trying to figure out how good is the technology, how good is the CTO. And it took me a few months to realize that that was probably just a waste of time for everybody.”
Polovets: Solely accepting warm intros excludes non-traditional founders
“If you only meet people through introductions, you're going to be shutting yourself off from people who come from different backgrounds or spend time in their social groups or different settings.”
Polovets: Fund returns depend far more on initial seed checks than follow-ons
“Yeah, you know, I do believe, actually, that you make most of your money on the right initial bets, And the key is just to make those bets meaningful and trying to double down later helps, but I really think it's secondary.”
Polovets: Overpaying across a seed portfolio cuts overall fund returns in half
“I do believe price is important. I think everybody talks about if you invest in Uber, then the seed price doesn't matter. And I think if you invest in Uber, that's true. The seed price doesn't matter. But I think the challenge is that most investors think most…”
Leo Polovets: VC reputation is built on handling struggling portfolio companies
“There's a really great Fred Wilson quote where he talks about VCs making their money on their big winners, but the reputations on the companies that struggle. And I think building that good reputation is what gives you a chance to work with the next generation…”
Polovets: Staggered valuation caps offer minimal dilution savings over upfront rounds
“Whether you raise all of it on five, or you raise a little bit on four, seven, and 10, most people think that the four, seven, 10 approach is way better, because the valuations go up so much. But it turns out, I think it's within about half a percent of diluti…”
Polovets: Startups fail from lack of product-market fit, not technology
“It's very rare for me to see companies fail because of the technology. It's almost always the product market fit is not there, or the team isn't able to recruit as much as they'd like”
Polovets: Most VC warm intros add friction without providing real signal
“I think the truth is most intros aren't actually that warm.”
Polovets: Relying on warm intros prevents VCs from being first check
“If you only meet people via introduction, you're Almost never going to be the first person to talk to a founder, almost by definition, because, you know, you're waiting for somebody else to talk to them first”
Leo Polovets: Multi-page pitch emails signal a founder lacks clarity
“I think there's a sync that shows that you know how to pitch your product well, and you have a really good grasp of it. And if you need three pages, I think that means that you still aren't sure exactly how to do that. And you don't know how to engage, you kno…”
Polovets: Helpful seed investors usually get follow-on investment access
“And I will also say, I think following on is not a fantasy in my experience. I think if you're helpful and you work hard and founders enjoy working with you, they'll usually give you a chance to follow on, you know, not always, but usually.”
Leo Polovets: Susa Ventures will not abandon struggling portfolio companies
“I strongly disagree with this. The first reason is, and this is actually kind of a personal reason, but, you know, my fund, Sousa Ventures, we talk about the investors and founders in our fund being a little bit like a family, and I know it's kind of corny, bu…”
Polovets: Deal picking matters more than deal access for venture returns
“I definitely think picking is more important, you know, because if you don't pick well, then it doesn't really matter if you get in or not, like you're not going to have a good portfolio, but if you can pick well, then access may or may not be important. And I…”
Polovets: Most VCs know very little about your specific startup
“VCs know a lot about businesses in general and sort of have a lot of knowledge across many companies, but it's very broad and not that deep. And they usually know very little about your specific business and industry.”
Polovets: A fund exclusively following top-tier VCs would be highly successful
“So if you had a fund that just did that, where all you did was follow on to these other top funds, like that would be an amazing investment vehicle.”
Polovets: Overpaying across a VC portfolio cuts fund returns in half
“And the problem is, you know, if you overpay by 50 or a hundred percent for one deal or two deals in a 30 deal fund, that's not a big deal. But if you do it for all of your deals, or most of your deals, now your cost basis may be doubled. And now that means th…”
Polovets: Bad VCs tarnish venture capital due to lack of public accountability
“I think most VCs are great and then a small number are not. And because there's no public repository of people, you know, saying what it's like to work with a specific investor, a lot of times, like both the good and bad investors will be able to get into roun…”
Polovets: Moats determine long-term margins and prevent zero-margin decay
“Well, I think the reason that moats are important is that they basically determine your profit margin over time. So if you build something that no one else can build, you can make 20 or 50 or maybe even 90% margins. But if what you're doing is easy to copy, th…”
Polovets: Early-stage unit economics only need to be in the ballpark
“You know, in the early days, I think unit economics, it's important that you're kind of in the right ballpark. So if it takes you a million dollars to acquire a customer that brings you 10,000 in revenue, like that's not good. But if it costs you 5000 dollars …”
Polovets: Founders must plan for moats starting on day one
“I really think it's important to think about moats from day one, and you might not actually develop a good moat until year two or year five or even year 10, but I think it's at least important to think about, you know, whether you could build a moat over time …”
Polovets: Data network effects build continuously, not overnight
“And I also think that most, like you mentioned, proprietary data and like data network effects, those things are not binary. So it's not like you don't have them on day 1000 and then you suddenly have them on day a 1001. And so they grow over time and the more…”
Polovets: Hard work and domain expertise are not sustainable moats
“And the truth is like, those are nice things to have and they'll help you get a headstart for a couple of months or maybe a year or two, but those are not sustainable competitive advantages. Like you can't outwork every company in the world forever.”
Polovets: Constructive rejection feedback builds long-term founder relationships
“And in my experience, it's best to send a thoughtful pass rather than disappear, and if you give constructive feedback about what you like about somebody's pitching company, and where are your hesitations, or where you see the risks, and you can give that feed…”
Polovets: Only a couple percent of founders argue with rejection feedback
“And I've actually learned that this pushback happens pretty rarely. So I'd say maybe, you know, a couple of percent of the founders where I send them some feedback, you know, most of the time people just say, thank you.”
Polovets: Defensive responses to rejection feedback signal difficult founders
“And if instead their response is more like, well, I think you're dumb and you're just not seeing it, then it's a good signal that maybe this person would be a little bit hard to work with or that they don't take it back well. So that's, you know, that's a grea…”
Susa Ventures tolerates 10-20% seed valuation premiums but reevaluates at 70%+
“We're not religious about it. I think if we're off by 10 or 20%, it's not a big deal. But if it feels like the price is off by 70% or 200%, then we really evaluate, like, how much we actually want to invest in a company.”
Polovets: Contrarian thinking is not the only path to VC success
“I'm not against being contrarian, but I definitely don't think it's the only path to success.”
Polovets: Susa walks away when founder valuations double internal targets
“If I was thinking this should be a six million dollar pre and they said they're raising a twelve million dollar pre, that's usually when either I'll walk away or we'll try to have a negotiation and then see if we could make something work out.”
Polovets: Good bridge rounds address remaining risks, bad ones fund non-essentials
“I think the good bridges are the ones where you had a checklist of four things, and you hit three of them, and you need a little bit more money to prove that the fourth one is not a big risk either. I think the bad bridges are where somebody spent a million or…”
Polovets: 80% of his seed role is helping founders raise follow-on rounds
“Yes, I think it's probably 80% of how I view my role, in the sense that, you know, the ultimate goal is to help a founder build a huge company, and a lot of times the next milestone to get there is to figure out what you have to prove and prove it so you could…”
Polovets: Flexport was Susa's only deal decided in the first pitch meeting
“At SUSE, we've made about 50 investments over the last four years. And Flexport was the only one where we made it, like, we basically made the call during the first meeting where we just said, okay, like, we want to be a part of this.”
Leo Polovets: Operational background is not required to be a successful VC
“I think you can be a really good or really bad investor with either background.”
Polovets uses post-meeting surveys to gather founder feedback on pitch meetings
“I actually got this idea from Finn at first round where he started sending a survey to founders he met with to basically ask them what they thought of the meeting. So I've been doing that for the last year or two, and it's a really short survey.”