I was thinking earlier today about one of the more subtle litmus tests that I use when considering an investment opportunity – my excitement trend line. My partner Ryan really helped me think through this a few months ago (I had been doing it but hadn’t been explicit about it).
For every investment opportunity we dig into there are always multiple meetings, due diligence calls, research reviews, partner debates and other chances to interact about a company or idea. It’s obvious when I write it out here – although I think more subtle when you’re actually in the middle of evaluating an opportunity – but the trend line around a potential deal should be pretty clearly rising as you spend more time on it. I’m not saying that every meeting has to be better than the last or that you can’t dig up issues that require further work or clarification. I am saying that overall your enthusiasm for a deal should be increasing (and clearly so) over time rather than going down or even staying the same. It’s not a reason in and of itself to make an investment, but is a pretty good barometer of when you’re on to something or not.