📕 Startup term you should know

Ever heard of Win Rate?

The percentage of solid, qualified leads that turn into paying customers. Think of it as your batting average for sales. If a company is winning a lot of the deals it goes after, that's a good sign the product is positioned well and the sales team knows what they're doing.

My insider scoop: Win rates above 20% indicate strong product-market fit, while rates below 10% suggest positioning or competitive issues. Aaron Ross notes that "improving win rate is often more valuable than increasing pipeline—it's cheaper to convert existing leads than generate new ones." For angel investors, track win rate by lead source, as some channels produce higher-quality prospects.

📰 Today's topic: If it’s not a hell yes, it’s a hell no.

Y Combinator runs its founder interviews back to back, ~10 minutes each, all day long. That’s dozens of interviews per day. 

There's no gap between interviews for deliberation. The YC team decides in the room and sends every answer, yes or no, to each company before the day is over.

We believe there’s something magical (like a purple hippocorn) about this approach as it pertains to picking winning investments even though there’s very little diligence.

Investing with your gut

In fact, across thousands of investments spanning Hustle Fund, 500 Global, and her own personal angel portfolio, Elizabeth says her strongest outcomes trace back to the deals she committed to immediately. 

On the flip side, Elizabeth says the deals she spent days thinking about rarely produced outlier results. 

While not foolproof, this pattern suggests that if a deal requires heavy deliberation (at pre-seed), it’s usually a negative signal. Said another way, if a deal isn’t a hell yes, in all likelihood it’s a hell no.

 When to trust your gut

Of course, knowing what a “hell yes” looks like requires practice. A lot of reps. Just like how shooting a free throw only becomes intuitive after having done it thousands of time, picking companies is the same way. Essentially, you start to intuitively know what you’re looking forward after inherently stack ranking all the companies you’ve ever seen in your mind. 

And for Elizabeth, she has built her gut instinct over 100,000 company pitches and 1k+ done deals. It’s a lot easier to make snap judgements once you’ve gone through the trial and error of understanding what a great deal looks like.

A newer angel writing a third or fourth $5,000 check hasn't built up that context yet. But with more reps, that instinct will sharpen.  And this is how the YC team is able to pick so quickly. For a single batch, they likely see tens of thousands of companies. 

In fact, this is how Andy Bechtolsheim wrote a $100k check to Google after just meeting with the founders once. The company didn’t even exist yet. And Masayoshi Son spent 6 minutes with Jack Ma and invested $20m after that (at pre-revenue!) And Peter Thiel spent 1 hour with Mark Zuckerberg before offering a term sheet. 

Now there’s a caveat, this really only applies to super early companies where there’s not a lot of data to analyze. If you are looking at late stage companies where there’s data and revenue and contracts, the due diligence should be more involved. But at pre-seed, there’s not a whole lot to look at. 

If you’re not there yet in making these speed decisions, don’t worry. Every deal that crosses your desk, including the ones you pass on, builds that track record and refines your instinct.  Until one day you find a deal that immediately makes you say “hell yes.”

– Brian from Angel Squad

Overheard in SF…probably

“Three of my friends said the demo was sick, so I'd call that product-market fit.”