I was sitting in a due diligence meeting with a venture capitalist I’d been working with for nearly a month. The conversations had been going well, and I was sure we were getting close to closing the deal.
This particular meeting was with the VC and a consultant his firm used to help them evaluate a startup’s tech.
No problem, I thought to myself as I’d been preparing for the meeting. After all, I wasn’t just the CEO doing the pitching. I was also the software engineer who’d built our original product. Heck, at that point in my startup career, I considered myself a “tech nerd” masquerading as a CEO anyway, so impressing a VC’s tech consultant was going to be simple. If anything, I figured he’d see such a knowledgeable technical founder running the company and encourage the firm to invest.
That’s not what happened. Instead I made a critical technology mistake that caused the VC’s tech consultant to recommend against investing. Obviously, that meant the term sheet got pulled, which sucked.
Even if you’re not a technical co-founder like me, you need to understand what happened so you can be sure your tech team isn’t making the same mistake with your startup.
The meeting with the VC and his tech consultant began like a lot of pitch meetings I’d done. I talked through my slide deck, explaining the problem my company was solving, describing the solution, showing our customer acquisition process, and so on and so forth. After I was done, the VC turned to his consultant and said, “We love what this company is doing from a conceptual perspective, and we think they’ve got a good start on growth, but we don’t know enough about their tech to understand how defensible it is. What do you need to know to help us figure that out?”
“Can you tell me about your tech stack?” the consultant asked. “What’s this thing built in?”
For the sake of those of you reading who aren’t “tech” people, I won’t go deep into the details of my answer. All you need to know is that, by asking about my “tech stack,” the consultant wanted to know what kinds of programming languages and server infrastructure our product was using as well as other tools and organizational paradigms to demonstrate the product was built properly.
We spent the next 30 minutes talking through all of our company’s backend infrastructure. Honestly, I enjoyed the conversation. After all, I was used to spending most VC meetings talking about things like marketing strategies and business models, so I was thrilled to finally be able to “geek out” and share the complexity and sophistication of the software I’d built. After all, I was a tech nerd. I didn’t just build a good piece of software, I did what any good tech nerd would do and built it using the latest, greatest, cutting edge technologies.
When I finished describing everything, the consultant nodded his approval. “You’re a great coder,” he acknowledged. “If this startup stuff doesn’t work out, let me know if you need a job.”
I was flattered by the compliment. As the meeting ended, I thanked the VC and his consultant for their time, and I left the building feeling great about my company’s chances of getting funded.
Unfortunately, I was wrong.
A few hours later, I got a call from the VC. I expected him to say we were moving forward. Instead, he said, “We love what you’re doing, but, unfortunately, our diligence has uncovered some concerns that are too big for us to feel comfortable making an investment at this time.”
“But why?” I asked in disbelief. I couldn’t understand why he was pulling out of the deal after a meeting that had seemed to go so well.
“Our tech consultant surfaced some major issues, and he doesn’t think it’s a wise investment,” he explained, “We have to trust his judgment. That’s why we hired him. I’m very sorry.”
“But he said I’m a great coder!” I almost shouted into the phone in disbelief. “How did that turn into him thinking you shouldn’t invest?”
“That was his warning,” the VC said. “You’re too much of a coder, and you’ve built your software using all sorts of new, cutting edge technologies. That’s a big red flag for us as investors.”
I was shocked by his response, so I asked the V to explain what he meant. Here’s what he told me:
“According to our tech guy, a lot of the tools you’re using are very new and buggy,” the VC replied. “I’m sure they’re fun to play with as a coder, but we’re not interested in investing in companies that are going to be spending half their time patching software because of updates and bugs. We’d rather our companies use older, more proven technologies so they’re more focused on their businesses.”
“You’re not investing in us because the technologies we’re using are too cutting edge?” I said in disbelief.
“Basically, yes” the VC answered. “Our tech consultant explained how the same things could be accomplished with a much simpler stack of older, proven technologies, and that your stack would be an expensive liability to maintain. I really am sorry, but we have to pass.”
I tried to argue we were fully capable of dealing with our technology, but it was no use. The VC had made up his mind. To him, a startup shouldn’t be using unproven technologies unless they had no other choice.
At the time, I was pissed. I couldn’t believe it was possible to be using technologies that were too advanced in a startup. However, in retrospect, the VC and his tech consultant were right.
Fast forward another year, and that company did fail. It failed, in part, because we spent tons of time fixing software problems that would have been much easier to deal with if we’d used more mature technologies.
The same is true for every startup. We tend to think of startups as being “cutting edge,” but that’s actually not true. Startups are inherently unstable, so, whenever possible, smart founders try to avoid using anything “cutting edge.” Instead, they prefer tools and strategies that are mature, proven, and easy to support. It might not be as “sexy” as using the latest, greatest tools and techs everyone is talking about, but that’s not what founders should be concerned about. After all, would you rather spend all your time fixing problems with your cutting edge tools, or, would you rather be growing your company?