Susa Ventures GP on Learning To Be A Great Investor

About Leo

Leo Polovets is a General Partner at Susa Ventures, an early-stage venture capital firm, investing in businesses with strong compounding moats, such as proprietary data, economies of scale, and/or network effects. Polovets has been a software engineer for 10+ years, approaches challenges with an engineering mindset, and supports portfolio companies in vetting and hiring technical talent. He was the second engineering hire at Linkedin, where he helped build the first versions of products like LinkedIn Jobs and LinkedIn Groups.


On what to look for when making the first hires at a startup

Knowing how all the pieces come together and what you need and when is essential for building your initial team.

“Culture is important. You want people that are startup-oriented in terms of mindset. They're more in favor of moving quickly, launching quickly, iterating quickly versus lots of planning, long iteration cycles, and getting everything perfect right off the bat. For most companies, there's that level of basic startup-mindedness. Then there's a culture fit with your specific organization. Your CTO, technical co-founder, or your early technical team, have certain ways of working together. You want to make sure that new hires are aligned with that.

Tactically, most companies hire generalists over specialists. A specialist is a premature optimization. You're not quite sure, often, what you need. Companies hire generalists to start, and those people will build the v1 or viewpoint one of everything. Then, over time, you see where you need more specialized effort.”

On looking for reasons to say yes or no as an investor

Outside of obvious red flags, you need to look for the full range of possible outcomes.

“We look for both because you do need to see a good upside. If you don't, it's hard to make the investment work. That said, you're also looking for an optimistic case.

How likely are we to get there? Is it one in 10, one in 100? 1 in a million? You're looking for the things you have to either believe or knowingly accept that there's a risk to convince yourself the chance of getting to this good outcome is high. That's where you're mostly looking for the reasons to say no.

Ideally, the reasons for saying no are very strong, so you stop doing diligence. Then there are other things where maybe it's more of a gray area. You think you need a domain expert for this space, but you're not sure, and the founder doesn't have domain expertise. Maybe that's something you dig into. You talk to the founder about how they think about something, find a few experts, and see how that aligns with expert opinion. If it's close enough, you invest. If it's pretty far, maybe you don't.”

On venture as an apprenticeship business

Because investing has such lengthy feedback loops, it’s essential to have mentors to check in with along the way.

“You need a mentor or a set of mentors for a variety of reasons. Feedback loops are long. You make an investment, and maybe within a year or two, you get some markups. Even that's a pretty long time. You also don't know if those markups, in the long run, will be meaningful or not. You can have a company raise a lot of money quickly and then flame out. Or maybe it takes them a long time, and they don't raise money for a long time, and you think they're going to fail, and then, suddenly, something clicks, and they take off. It often takes maybe four, six, or eight years to see if a company is doing great and if you made the right call. That's a long time for you to be making investments before you know if it's going well or poorly.

You need some calibration and mentorship. It's about hearing what other experienced investors think. What are the different things they focus on? Are there gaps in how I evaluate startups? Maybe they see those gaps, and they’ve tried to fill them in. You only get that through mentorship and calibration. It's much faster to get it that way than to try it yourself. Then, learn from your own mistakes over five or ten years.”

On wanting founders to be successful

If you want the best for founders, whether you invest in them or not, can help you be a great investor.

“It's such an interesting business because everyone's wrong a lot. In our portfolio, a bunch of other good funds passed on most of the great companies. Other funds’ portfolios, we passed on. By default, we tend to be more wrong than right. That's probably true for all venture firms. On the one hand, you want to be right in the sense that you want to know you made the right investment decision. In the end, you want to be wrong.

I don’t take pleasure if in a year, a founder reaches out and says, you're right. It failed. My hope is I'm wrong for your sake, and the company works. Or maybe I was right about what you’re doing now, but the thing I wrote in declining to invest helps you think about something in a different way and helps you avoid failure. Those are the things that are more satisfying than just the investment decision. That's another good reason to leave feedback. Hopefully, you're helping somebody out, even if it's a fraction of the time. You see some risk from a rational perspective that maybe they hadn't thought about, and perhaps they can mitigate it.”