What investors ask and how to answer : All-in-one guide for founders. | VC & Startup Jobs.

Validating startup ideas with the 2-20-200 & 5 PM frameworks & Send Memos instead pitch decks.

Jul 18, 2025

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In Today’s newsletter:

Deep Dive: What investors ask and how to answer: All-in-one guide for founders.
Quick Dive:
- Frameworks: Validating startup ideas with the 2-20-200 & 5 PM frameworks.
- Use memos instead of Pitch Decks: Advice from a founder who raised $42 million.
Major News: Scale AI lays off 14% staff after Meta acqui-hire, Jack Dorsey pumps $10 million into open source social media, The Chainsmokers closed a $100M VC fund, Cognition acquires Windsurf & Musk’s Grok making AI companions.
20+ VC & Startups job opportunities.

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📜 TODAY’S DEEP DIVE

What investors ask and how to answer: All-in-one guide for founders.

If you are fundraising or looking to fundraise for your startup, you will see annoying questions from VC :).

Not only this, you will find some other things like - I don’t think this can be a venture-scale business, We’d be interested when we see a bit more traction, Come back when you have a lead, etc, and most founders don’t know how to think about these questions and proceed with it.

So in this post, I will try to cover most questions and how to answer these questions.

What if Google Builds It?

You will find a lot of VCs asking this question where Google substitutes with Amazon or Facebook or any other big company.

It’s a valid question - this shows your startup edge and how you will win. Here are a couple of answers that may help:

Too big to care: These giants are so huge, your "little" idea might not even catch their eye. They're busy chasing bigger fish.
Slow movers: Big companies are like big ships - they turn slowly. You're a speedboat. You can zip around, change direction fast, and give customers exactly what they want before the big guys even start their engines.
Proof you're onto something: If a big company notices your idea, it means you've found a real problem to solve. That's exciting!
People will pay for better: Even if Google makes a free version, many folks will happily pay for a product that actually answers the phone when there's a problem. Just look at companies like Mixpanel or Superhuman - they're doing great against free Google stuff.
Show off your speed: Can you build things faster than the big company? Can you make your customers super happy? Focus on that. It's your secret weapon.

Remember, being small and quick can be your superpower. Use it to outmanoeuvre the giants!

I don’t think this can be a venture-scale business

Previously, I shared my thought process on how investors think about this particular question. Let me know to share more info here

Not every business needs venture capital (VC) money. It's like rocket fuel - great if you want to go to the moon, but overkill for a quick trip to the store. VCs are looking for companies that can grow incredibly fast and become huge.

They want to turn their money into a fortune, and fast. We're talking about businesses that can make $100 million a year in just five years. That's a wild ride, and it's not for everyone.

But here's the funny thing: it's really hard to predict which ideas will explode like that. VCs often think they know, but they're wrong all the time. They might ignore a business selling stuff online, thinking it can't grow big enough. But what if it's the next big thing, like Stitch Fix?

So, if you're thinking about chasing VC money, ask yourself: Do I really want to build a massive company? Can I handle hiring tons of people and working like crazy? If that sounds exciting, great! Think about how you'll grow your business super fast. How will you double or triple your sales each year?

But if that sounds like too much, don't worry. There are other ways to get money for your business. You could talk to individual investors, try crowdfunding, or look into loans based on your revenue. These options are becoming more popular and might be a better fit for your dreams.

The most important thing is to be honest with yourself about what kind of business you want to build. There's no shame in staying small or growing slowly if that's what makes you happy. Just make sure you're chasing the right kind of money for your goals.

We’d be interested when we see a bit more traction

When a VC tells you they want to see "more traction," it's like they're saying, "I'm not sure about your business, but maybe if you grow more, I'll change my mind."

The problem is, most VCs can't really tell you exactly how much growth would convince them. If you suddenly made $100 million, sure, they'd all jump on board. But what if you grow to $100,000 a month in a year?

Well... it depends. VCs like to keep their options open, so they'll always want to "check in later" unless you're clearly terrible or a scammer.

It's frustrating, right? But here's how to handle it: Don't waste time trying to convince these fence-sitters. Put them in your "not interested" pile. Keep sending them updates, sure, but focus on finding investors who believe in you right now. You're better off meeting tons of investors and quickly figuring out who's actually excited about your idea.

Remember, it's like dating. You don't want to spend months trying to convince someone to like you. You want to find someone who's into you from the start. So get out there, talk to lots of investors, and find the ones who get that spark in their eyes when you explain your business. Those are the folks you want on your team.

Don't get hung up on the maybes. Keep moving, keep pitching, and the right investors will show up. It's a numbers game, so play it smart and don't let the "show me more traction" crowd slow you down.

Come back when you have a lead

When a VC says, "I'm in once you have a lead," they're basically saying, "I don't want to take the risk, but I don't want to miss out either." It's like they're waiting for someone else to give your idea a thumbs up before they jump in.

But here's the thing - "lead" can mean different things to different VCs. Some want to see most of your money raised. Others just want to know the deal terms. And some are looking for a big investor to take charge and join your board.

So, what do you do? First, get clear on what they mean by "lead." Don't be shy - ask them straight up.

If they just want to see most of the money raised, you've got options. You could bring together a bunch of smaller investors without a traditional lead. It's called a party round, and it's pretty common these days.

If they're just after the terms, you can set those yourself. Create your own deal on a simple agreement like a SAFE or convertible note.

But if they want a big-shot lead investor who'll take a board seat and run the show, that's a whole different ballgame.

The key is not to get hung up on these "maybe" investors. Keep moving, keep hustling. Build your round in whatever way works for you. Remember, there's more than one way to skin a cat - or in this case, raise some cash.

Don't let the "we need a lead" crowd slow you down. If your idea's good and you keep pushing, you'll find the right investors who believe in you from the start. That's who you want on your team anyway.

Why hasn’t this been done before?

This might sound like a silly question, and some could say a lazy VC just doesn’t want to do their homework. But really, it’s a smart way to see how you think about trends and changes in your market.

If you believe that markets are efficient, then your opportunity shouldn’t exist. Why? Because if it were that obvious, everyone would have already jumped on it.

So, what’s your special insight? What do you know that others don’t? Is it your deep knowledge of the industry? Is the opportunity sitting at the intersection of two areas that most people don’t understand? Or is it a trend you’ve noticed in a specific group of people that others haven’t picked up on?

Every startup needs to have a solid answer to this. Even investment funds face this question, Why is no one else doing what you’re doing? It might be annoying to hear, but it’s a valid question.

So, if a VC asks you this, don’t get defensive. Use it as an opportunity to explain what makes your idea unique and why you’re the right person to take advantage of it. If you can’t answer this question, it might be time to rethink your approach.

Contact us if you like, but we prefer warm introductions.

It’s kind of funny that VCs often want warm introductions, yet many VC analysts still reach out cold to startups asking to chat.

My advice? Always aim for a warm referral to a VC if you can. Having a mutual connection really helps in building rapport. However, many newer VCs, especially microVCs, are open to cold emails.

Also, for most VC firms, about 20% of deals come from completely cold outreach, andthey see no difference in performance between those and the ones that come through warm introductions.

Looking ahead, I predict that in the coming year, the VC landscape will increasingly accept good cold emails. Sure, most cold emails are poorly written and will be ignored, but if you craft a strong one, you might just catch their attention.

What’s the moat? (for a seed stage)

This can be really frustrating for a seed-stage company since, let’s face it, there’s usually no real moat in place yet.

When you think about it simply, the only true way to create a moat is to make your customers love your product so much that they never want to leave and keep coming back. There are many ways to achieve this.

For example, you might offer a better user experience, leverage more data to improve your solution's accuracy or create strong network effects that enhance your product. The path to building this loyalty will vary depending on your idea.

VCs are particularly interested in understanding how you plan to achieve this on a larger scale. This is especially important for companies with commodity products, like those in finance. Competing on price or better deals isn’t sustainable.

Instead, VCs want to know how you’ll create a smarter, more appealing product. How will you design your business model to encourage customer retention? They’re more focused on how you envision this five years down the line than on your current situation.

How can this be a billion-dollar company?

The reason VCs are so fixated on billion-dollar companies is simple - the economics of running a VC fund are brutal. Most of the startups in their portfolio will fail completely.

So any 1 or 2 winners they have need to make up for all those failures, plus a whole lot more, in order to generate the returns their investors expect.

This means VCs are looking for at least a 100x return on a successful investment. If they invest at a $10 million post-money valuation, say at the seed stage, 100x on that is around $1 billion, before accounting for dilution.

So it all comes back to the question you have to ask yourself - do you really want to be raising money from VCs? Is this the type of business you want to build? One that needs to be a unicorn to justify their investment?

There are other paths, like bootstrapping or targeting a smaller but profitable market. Those may not make you a billionaire, but they can still lead to a great business. It's a very personal decision based on your goals and aspirations as a founder.

The key is to be really honest with yourself about what you want and what you're willing to do to get there.

Don't just chase the VC money because it's available. Make sure it aligns with your vision. Because once you take it, you're locked into their timeline and expectations.

“Yes, but what *traction* do you have?” & “Your valuation is so HIGH now!”

It's like the classic Goldilocks story - sometimes you're too early, sometimes too late, and it's rare to be just right.

At first, VCs might say you don't have enough traction. Then, once you gain some momentum or bring in another investor, suddenly you're too late - the valuation is too high for them to get in.

As frustrating as this is, it really comes down to luck, timing, and fit. As pre-seed investors, we face this too. We invest super early, before traction even exists. So we rely heavily on gut instinct about the opportunity.

If we're not fully convinced, we'll pass. And if a founder later proves us wrong with traction, we still can't invest because the valuation is out of reach.

It's a bummer, but VCs who miss out feel the pain too. Look at the Uber IPO - tons of VCs lost out on huge gains because they didn't believe in the idea early on.

Gut instinct is huge in this business. To be honest, you only need to be right 20-30% of the time to be considered a great VC. It's like baseball - you strike out most at-bats. Imagine if surgeons only succeeded that rarely - they'd be fired, and patients would be dead!

The only exception is multi-stage investors. If they miss your seed round, you can always circle back for a Series A or B. But for early-stage VCs, it's a constant dance of being too early or too late.

Also, we have created a detailed guide covering tough questions that VCs might ask about the team, market, product, tech, vision, and strategy, along with how to answer them effectively.

For each question, you’ll get:

What investors are really asking (the meaning behind the question)
How to answer (framework): a clear structure that actually works
Sample answer: not vague stuff, real founder-style responses
Common mistake: what most founders get wrong and how to avoid it.

You can download our detailed guide here.

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📃 QUICK DIVES

1. Frameworks: Validating startup ideas with the 2-20-200 & 5 PM frameworks.

Most people validate startup ideas the wrong way.

They either rush into building something with no user input or spend months overthinking without making any progress. Both paths feel productive but usually lead to disappointment.

Validation isn’t about getting 100% certainty. It’s about reducing uncertainty fast, so you can confidently take the next step or kill the idea early without regret.

That’s where the 2–20–200 and 5 PM frameworks come in.

These were shared by Rob Walling, a serial entrepreneur and co-founder of Drip. He’s built, bought, and scaled several software companies over the past two decades. His frameworks are incredibly useful if you’re still in the idea maze.

The 2–20–200 Framework: Don’t Jump to Building, Earn It

Rob’s idea is simple: every startup idea deserves just enough of your time before it earns more.

You move through 3 stages - 2 hours, 20 hours, and 200 hours, with increasing commitment as you see traction.

2 Hours: First Filter

Spend just 2 focused hours asking: Is this worth exploring further?

You do this by:

Running your idea through the 5 PM framework (more below).

Problem

Is it painful? Does it solve a real, frustrating problem, or is it just “nice to have”?
Is it urgent? If it's an aspirin (urgent), that’s stronger than a vitamin (optional improvement).

If the problem isn’t painful and urgent, it’s hard to get early users excited.

Purchaser

Who buys? Is it a consumer, prosumer, business, or enterprise?
Do they adopt new tools? Early adopters are easier to test with.
Do they pay for software? Willingness + ability to pay matters more than market size early on.

You want to find a purchaser who has a problem and a budget.

Pricing Model

Can you charge monthly or annually?
What’s the potential average revenue per customer?
Can you avoid a race to the bottom with pricing?

You’re not optimising pricing yet, but you want to know if this can become a healthy business.

Market

Size: Is it big enough to matter, small enough to dominate early?
Accessibility: Can you reach customers without huge budgets?
Competition: Is the market underserved, or crowded with VC-backed players?

You’re looking for unfair advantages, small pockets of pain where incumbents don’t care.

Product–Founder Fit

Do you have context or passion for this space?
Can you access users easily?
Do you bring unique skills, tech, domain, and distribution?

Many ideas die because the founder didn’t care enough to stick through the hard parts.

You’re not looking for conclusive proof.
You’re looking for signals, search volume, active discussions, people complaining, and tools being mentioned. The goal is to spot early signs of demand and urgency.

If you can’t find anyone talking about it, that’s a yellow flag. Either the pain doesn’t exist, or you’re too early.

20 Hours: Talk to Humans and Build a Landing Page

If your 2-hour sprint gave you positive signals, earn the right to invest 20 more.

Here, you start getting messy:

Talk to people in your target audience. Start with warm leads, then go cold.
Ask about their workflow, pain points, and current solutions.
Look for the language they use to describe the problem. You’ll reuse it later.

Simultaneously, create a basic landing page:

Clear headline about the pain you solve.
A few bullet points explaining the value.
An email form or CTA for interested users.

Then, share the page where your audience hangs out. You’re looking for:

Do people sign up?
Do they reply to follow-up emails?
Do they want to talk more?

At the end of these 20 hours, you should know if:

The problem is real and painful.
People care enough to give you their time or email.

Most ideas die here, and that’s a good thing.
You just saved yourself 6 months of building the wrong thing.

200 Hours: Build to Learn, Not to Impress

Only if your landing page converts and your interviews confirm real interest do you move to this stage.

Now, you can spend ~200 hours building a Minimum Viable Product (MVP). The goal isn’t perfection, it’s speed and feedback.

You can:

Use no-code tools to build quickly.
Hack together manual processes behind a UI (human automation).
Build a basic coded version with the core feature set.

The MVP should solve the core pain and give you real user feedback:

Are people using it more than once?
Are they telling others?
Are they willing to pay?

Tip: 200 hours is not a final product. It’s a testable version to learn fast. The goal is insight, not scalability.

This framework helps to avoid wasting time on the wrong things.

So if you’re sitting on a few startup ideas right now, pick one and run the 2-hour sprint today. You might kill it, or you might earn your way into something real.

Either way, you’ll be way ahead of most people still stuck in the idea maze.

Do you use any other frameworks to validate your ideas? Feel free to share them in the comments.

2. Use memos instead of Pitch Decks: Advice from a founder who raised $42 million.

Tara Viswanathan, founder of Rupa Health, has raised $42 million for Rupa with 15+ term sheets without using pitch decks. What she used to pitch investors instead was a memo.

She strongly suggests founders use memos more (and not always decks), but why

Top secret - Investors love to see memos..

First, one is not better than the other
1. If you need to explain a key concept (i.e. your product), use a deck.
2. If you need to explain more than 1 key concept (a complicated market & your product), use a memo. The complexity of a concept determines the format.
Memos force you to think
When you explain your thinking in writing, it forces you to narrate your logic step by step. You can get away with holes in thinking in a deck, but with a memo, it’s impossible. Even if you don’t send the memo, writing it is valuable by itself.
Memos do the hard work for investors
By creating a memo, you simplify much of the work for them. All investors need to write internal deal memos to invest in your company. Creating a memo for them simplifies A LOT of that work.
Investment memos are dynamic.
You can include links, videos, graphs, photos, and screenshots using tools like Dropbox. Always allow investors to explore further IF they are interested. Let investors "choose their adventure”.
Pitch decks still have value.
Use a pitch deck in partner meetings; they’re great in 1-to-many settings. Send the memo ahead of time. Use pitch decks to drive the conversation.
Your memo will live on (WAY beyond the fundraising process) ∞
Decks generally need a voice-over; memos do not. This makes memos super valuable resources for recruiting, onboarding new hires, educating the team, etc.
Memos and decks serve different purposes.
Both are valuable. But I’m more and more convinced, writing a memo is insanely powerful. Especially with complex/early markets that are hard to understand.

Wondering how to write an effective investment memo as a founder?

There are lots of formats online. But if you want one that’s trusted and proven, check out the investment memo template by Visible VC, it's one of the best out there for fundraising.

THIS WEEK’S NEWS RECAP

🗞️ Major News In Tech, VC, & Startup Funding

New In VC

Cambrian Ventures, a fintech-focused VC firm led by solo GP Rex Salisbury, has raised a new $20M fund. (Read)
Mantis Ventures, the VC firm co-founded by The Chainsmokers’ Alex Pall and Drew Taggart, has closed a $100M third fund. (Read)
Brian Singerman and Lee Linden are reportedly raising $500M, the first fund for GPx, a San Francisco, CA-based newly formed venture capital firm. (Read)
Evantic, a new venture firm founded by former Sequoia partner Matt Miller, has raised $355M for its debut fund. (Read)

Major Tech Updates

Scale AI is laying off 200 employees and 500 contractors, 14% of its workforce, after overextending its core data-labelling operations. (Read)
OpenAI has officially listed Google Cloud as a compute partner, joining Microsoft, Oracle, and CoreWeave to meet rising AI infrastructure demands. (Read)
French startup Mistral has released Voxtral, an open-weight audio model designed for businesses, offering transcription, summarisation, and real-time voice command capabilities. (Read)
Amazon launched Kiro, a new AI-powered agentic IDE built on Code OSS that aims to help turn developer prototypes into production-ready software systems. (Read)
Nvidia will resume H20 AI chip sales to China and introduce a new RTX Pro chip tailored for compliance, following months of export restrictions and lobbying. (Read)

New Startup Deals

Firestorm Labs, Inc., a San Diego, CA-based expeditionary manufacturing company, raised $47m in Series A funding. (Read)
Chariot Defence, a San Francisco, CA-based defence technology company, raised $8m in seed funding. (Read)
Former OpenAI CTO Mira Murati’s new AI startup, Thinking Machines Lab, closed a $2B seed round led by Andreessen Horowitz, valuing the company at $12B. (Read)
Abacus, a San Francisco, CA-based company developing agentic CPA assistants for accounting firms, raised $6.6M in seed funding. (Read)

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