One of the questions I get the most from founders is what I look for when making an early-stage investment. Throughout the years I've gathered many frameworks from great investors and aggregated them to form my thesis of what questions to ask when making a seed investment. The best frameworks can be applied across any industry and are timeless, I'm sharing some of the ones I consistently come back to:
High-Level Investing Frameworks
David Friedberg shared a simple checklist he asks when investing:
Can you build a product?
Do people want to buy your product?
Can you make a positive gross margin selling that product to people?
Can you make a return on the marketing dollars you need to spend to generate that gross profit (LTV > CAC)?
Can you scale the amount of money you deploy to grow your business such that as you grow the returns go up not down?
Can you be a platform? (transition to become a multi-product company)
I like the chronological nature of the questions and how they draw upon basic business principles. Similarly, Will Quist shared a framework based on value investing that overlaps with this one.
Is the arc of history bending this company’s way?
What is the absolute and relative value proposition of the product?
How much was spent on the problem last year?
What is the defensibility?
What is the equity efficiency of the business model?
This framework is more directly applicable to seed investing and is a great overview of the five things that matter in the early stage. The rest of this post will explore some specific seed investing frameworks and conclude with my aggregated high-level framework.
Framework 1: Customer Obsession
The first and most important question any startup must answer is: who is the customer? Developing a deep empathy for the customer is essential. Start by clarifying the product and articulating it relative to the customer. Then, consider how the business will align with the founder's strengths, the product's nature, and how this will shape the business strategy. For instance, does the product require a strong sales presence? Is it a solution that demands persistence rather than visibility? Or does the organization need to be structured around fostering creativity?
Understanding the customer is fundamental to everything. It requires a clear picture of who they are, what they care about, and how they make decisions. You need a mental model that identifies the key factors they consider when choosing between alternatives and the one or two variables that matter most to them. A great question to ask when thinking through this is "Why is this the best possible thing for your customer?"
Amazon, for example, realized early on that convenience was the defining factor for their customers, specifically through ubiquitous, free, fast shipping. This kind of insight simplifies decision-making and sharpens the focus on what truly matters.
Framework 2: Product Market Fit is Binary
Investing in startups before they achieve product-market fit (PMF) requires a leap of faith that many investors are reluctant to take. PMF isn’t just an important milestone—it’s the singular focus for any startup. Any effort outside of finding PMF is wasted energy.
Startups begin as fragile entities, essentially lifeless, and must work to come alive. Achieving PMF involves introducing something radically unique to the world that resonates deeply with people. Once this is discovered, it becomes unmistakable and impossible to ignore.
The distinction between investing before and after PMF is stark. The most challenging time to invest is when a startup has built a product but hasn’t achieved PMF. Investors often believe that the company is on the cusp of PMF and try to pay slightly less than the post-PMF valuation. However, the reality is binary—either PMF exists, or it doesn’t.
Investing in a pre-PMF startup with a developed product carries almost the same risk as investing in one without a product. The critical question remains — whether the company has demonstrated a unique value proposition that the market truly needs.
Framework 3: Validating a Hypothesis
In the early days, a startup should be framed as an individual or group of people allocating capital and resources to validate a hypothesis. A seed investor's job is to fund this experimentation whereby if the hypothesis is correct, the enterprise value of the business should dramatically increase. Therefore, founders should not only have a novel take on value creation but also think about whether they can run an experiment to validate it. The best founders I've seen will have 2-3 core hypotheses and think systematically about what data points they need to see to be proven correct or wrong. Experimenting and iterating fast is key here.
Framework 4: Atomic Value Swaps
Chris Paik has talked extensively about this framework and it remains one of my favorite ones to apply in investing.
An Atomic Value Swap represents the foundation of sustainable, repeated transactions within an ecosystem. It measures the dynamics and durability of the core exchanges that drive interactions, whether they involve money, goods, services, or more abstract values. To understand an atomic value swap, start by asking: what is happening in the exchange?
But why do people engage in exchanges at all? Every transaction costs something, whether it’s time, effort, or money. The sustainability of these swaps depends on how durable and repeatable the exchange is. Does the value of the transaction increase or decrease in effectiveness over time?
Transactions involving tangible goods or money are straightforward to understand because they adhere to clear, market-driven prices. In contrast, exchanges involving intangible or emotional elements—such as trust, recognition, or loyalty—are more nuanced and unpredictable. Human psychology can often distort expectations, making it difficult to measure or anticipate the value of these interactions.
To identify and analyze an atomic value swap, consider three key questions:
What is the value being delivered?
What is the perceived value of what is delivered?
How fairly is the creator compensated for the value they provide?
Framework 5: Market Game Theory
Jesse Beyroutey taught me about this framework applied to markets.
Dominant Moves and Customer Alignment — In a clear set of opportunities, the best strategies enable a player to dominate systematically or probabilistically. For early-stage companies, this means identifying and executing moves that establish a strong, differentiated position. To achieve this:
Understand how customers perceive your company. Define what you’ll always deliver, what you’ll never do, and how you can consistently differentiate yourself in their minds.
Secure proprietary resources—such as exclusive data or expertise—that competitors can’t easily access.
A company’s dominance depends on aligning its product and business model perfectly with its customers’ interests.
Dominance friction arises when there’s a misalignment between a company’s business model and its customers’ needs. Competitors can exploit these gaps with better alignment. Startups often thrive by targeting such misalignments in incumbent industries. For example, traditional financial services often misalign with customers by charging fees based on transaction volumes, creating opportunities for disruption. However, startups sometimes fail by improving customer experience without addressing deeper structural misalignments—what might be called the industry's "original sin." Failing to fix these foundational issues leaves the door open for competitors to offer truly aligned models.
To succeed, align your profit model with your cost drivers and customer value—even if it means leaving some profit on the table. This creates consumer surplus, making customers so satisfied they promote your product enthusiastically. Winning through deep customer alignment fosters loyalty and sustained growth.
Aggregated Framework — What I Look For
When investing, there are fundamentally three questions that I always come back to and never change across industries, sectors, or geographies:
Is this a truly exceptional founder?
Do they have a unique insight?
Are there strong market tailwinds?
Is this a truly exceptional founder?
While this is an obvious question, I still believe it to be the most important one. An n-of-1 founder will build an n-of-1 company. The culture of the company is 90% the personality of the founder, the extreme characteristics of the founder's personality are amplified into the company's DNA. The product is the founder's taste; if you think you can make it good, other people will also think it’s good. These stories are fundamentally the stories of individuals replicating themselves.
In the Founder's Podcast, David Senra talks about why he believes that ultimately everyone is searching for their life's work, which he defines as a lifelong quest to build something for others that expresses who you are. Here are some of the traits of people who find their life's work:
Wake up with a burning desire to achieve mission success. Always in the service of others, because that’s what a product does, products make other people’s lives better.
Older founders do better. An essential ingredient is that they took more time to get to know themselves. People who get to the top in their field are a reflection of themselves.
Aside from understanding themselves, the best founders possess the same three qualities: grit, velocity, and sales ability. Starting a company is the ability to run through walls and face adversity. Founders need to have overcome some sort of adversity in their lives and be able to channel their learnings into company building. The velocity of company building is also incredibly important. From what I've seen the speed of decision-making matters more than the accuracy. Starting a company is never a straightforward path but requires a lot of course correction. All else constant, the founder and team who can iterate and make decisions faster will win. Finally, sales ability or the ability to attract talent, customers, and investors can also determine the fate of a company.
The ideas of decision-making velocity and sales ability are directly tied to the concept of "founder-market fit" which is another way to understand why this particular founder is best suited to build in this market. If they have a deep understanding of the market or customer they can make intuitive decisions that would take outsider founders longer to make. They are also likely to be better at convincing others to believe and take a chance on them.
Do they have a unique insight?
Seed investing is insight development. An insight is an unrecognized truth about the future that the founder has. Most people assume that this insight comes from experts who have been in the industry for a long time, but this isn't always the case. There are times when founders who are new to an industry can connect dots that insiders can't and reach novel conclusions. I often see a distinction between B2B and B2C companies, often B2B requires a strong industry network and time spent in the market to fully understand the market structure and where the problems are. Usually, B2B founders with strong insights have spent many years in the industry whereas, strong insights for B2C companies come from young founders with a fresh perspective.
I've invested at the earliest possible stages where there are 1 or 2 founders with no deck or product, only an idea. A lot of times people conflate being too early with not having a unique insight. When a pre-seed/ seed firm passes on you it's likely because the insight is not strong enough. There is also a key difference between a unique insight and a well-understood insight. An insight that is already well-understood by the market means you will face a lot of competition and the winner is determined by the team that can out-execute others. Having a unique insight means that the idea is only obvious to you, giving you time to operate and avoid competition.
One of the key characteristics of a great unique insight is that it reframes how I think about a specific market or customer problem when discovered. To me, this is one of the most rewarding feelings as an investor, when you sit across an entrepreneur and they articulate something that they have spent a lifetime thinking about that fundamentally reframes or gives you a new lens on how to view the world. The best insights have a profound truth to them but are easily articulated and understood. As a founder, it is incumbent upon you to frame this insight in a simple way that others can easily understand without having to be in the industry for a long time.
Are there strong market tailwinds?
The last question takes into consideration the market but rather than just focusing on whether the market is growing, it's helpful to understand market timing. A good answer to the question "Is this a company that is well served to raise venture capital?", contains commentary on why there is an adoption pull that is about to happen (for seed investors it’s in the next 1-2 years). To answer this question well you need to see the present clearly and understand what are the imminent adoption curve inflections happening.
Inflection points are important because they enable exponential improvements, this disruption can cause a dislocation in distribution for incumbents that startups can take advantage of. Startups are by definition less resourced and disadvantaged relative to existing companies, so they have to make the best of any advantage they may have. Venture-scale businesses require an imminent adoption curve inflection, a great question to ask yourself when trying to identify these inflections is Why this company couldn’t have existed five years ago?
One of the first seed funds, Floodgate, has done a lot of work articulating what inflection points are and how they relate to building a company. They articulate that when starting a company a founder should first identify inflection points and use these to develop insights to eventually form an idea. Floodgates talks about four inflection points but I believe 3 primary ones matter. In order of importance, they are technology, regulation, and belief inflections.
A technology inflection refers to a reduction in price or increase in performance of a specific technology. Seed investors should think about when a technological change is built into a system that has mass distribution (internet, mobile, AI, etc.,) and how startups can leverage this. Consumer investing has largely been about waiting for big disruptions that can unlock distribution.
Regulatory inflection refers to a regulation change that can open up new opportunities for startups. An example is the new administration signaling positive change around cryptocurrency and stablecoin adoption. The problem with this inflection point is that it usually isn't as sudden as technological inflections and as such incumbents can shift their focus to take advantage of this as well.
Finally, belief inflection is a change in societal norms that can lead to increased adoption. As an example, in the US, I would point to the increased acceptance of psychedelics for therapy use. This inflection point is harder to pick up on and like regulatory inflections usually isn't as quick to happen as a technological one.
While all of these frameworks help shape conversations with founders, fundamentally I've found that seed-stage investing comes down to answering one question:
What can you uniquely do that people are desperate for? - Mike Maples
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