The Most Underrated VC Due Diligence Item: How Founders Learn
Why do so many Founders make the same mistakes, costing Investors substantial capital? My previous explanations—overconfidence and fear of failure—capture part of the problem. There’s a third factor that VCs don’t pay enough attention to: how Founders learn. Too many rely entirely on instinct and action, moving fast but failing to apply a structured, test-and-learn approach.
The Founders most likely to succeed are those who blend action-driven experimentation with structured, curiosity-fueled learning. Investors who assess learning style as part of their diligence process improve their chances of backing entrepreneurs who can adapt, refine, and execute better over time.
In This Article
Entrepreneurs Don’t Learn: Paying For Customers Too Early
When asked about the main error Founders make, many VC firms will point to raising too much money too early, mistakenly believing they should acquire growth as soon as possible.
Aileen Lee, who leads the early-stage Silicon Valley firm Cowboy Ventures, calls this the customer acquisition trap: paying for premature customer acquisition campaigns before validating product-market fit.
Founders expose their startups to two potentially fatal risks: wasting money on a product or service that isn’t the right iteration, and getting misguided on who their real customers are. Paying for users too soon can attract the wrong audience, creating a false sense of progress and misleading startups about their product’s true market fit.
You can’t fall into the trap of paying for customer acquisition.
Aileen Lee – Cowboy Ventures (Source: 25iq)
Startup cemeteries are full of projects led by Founders who made this same mistake. Yet, many first-time entrepreneurs not only keep repeating this costly error, but also waste time and resources engaging in fundraising activities too soon.
Many Investors have lost money investing in startups chasing with product-market fit with external capital.
One of the most spectacular examples in recent years is Quibi, led by Jeffrey Katzenberg, the co-founder of DreamWorks Animation and a Hollywood veteran, and Meg Whitman, the former CEO of eBay and Hewlett-Packard.
After raising $1.8 billion to produce and distribute high-production-value mini-series, the company folded within months of its launch. One post-mortem analysis noted that the failure stemmed from a lack of market understanding: “Neither Katzenberg nor Whitman truly seemed to understand how people use their phones, what people want from streaming services, or why platforms like TikTok and Netflix succeeded.”
Adding more money to a situation of lack of product market fit rarely works.
Justin Kan – Twich, Atrium
Another example comes from Justin Kan, co-Founder of Twitch, a streaming service sold to Amazon for nearly $1 billion. When his second venture, Atrium, failed in 2020 after raising $75 million, Kan shared a list of lessons learned. At the top: in hindsight, the large sums raised too early were a curse.
These are two in myriads of examples of startups raising money too soon, before going through the hellish test-and-learn loop necessary to get to product-market fit.
Attracting customers organically has two additional advantages: these customers tend to stick longer (lower churn, higher retention), and VCs will favorably consider the funding opportunity. On average, a business built on capital efficiency has better odds of getting financing.
Read: Love At First Click: The Product-Market Fit Metrics VCs Fall For
The Root of Fatal Entrepreneurial Mistakes
Given how widespread the notion of testing, not paying, your way to product-market fit is, why are so many Founders still starving their company’s resources by spending too much cash too early? Or trying to raise too much money too soon, with harmful consequences on the startup’s future (and the Founders’ mental health).
A strong undercurrent must be at play because even people who know about this trap fall into it. (Raising my hand. I remember spending hard-earned cash on social media before I even had a paying product!). This question strongly influenced my doctoral research on the psychology of entrepreneurs.
The question is all the more pressing that failing to find a market for their product is the first cause of startup death. (Not raising cash or running out of it are consequences of not having clients).
Damaging Personality Traits
Part of the answer lies in personality traits often found in entrepreneurs, primarily overconfidence and—unexpectedly—fear of failure.
Overconfidence is a double-edged sword acting as a catalyst for innovation or a potential pitfall. While it drives Founders to pursue ambitious ventures, it can also lead them to misjudge an opportunity—such as entering super-niche markets.
Fear of failure, often rooted in perfectionism, causes entrepreneurs to endlessly refine their products, delaying market entry. This hesitation prevents them from gathering essential user feedback, hindering their ability to adapt and meet market needs effectively. Failure is part and parcel of the entrepreneurial journey.
Every success I’ve ever been in had multiple points of failure, some of them near-death experiences for the company.
Brad Feld. Source: The Twenty Minute VC
Other personality traits often found with entrepreneurs may explain the phenomenon, such as:
- Optimism: “It will work, I’m sure of it.”
- Perseverance: “It’s not working now, but if I keep at it, it will.”
- Impatience coupled with arrogance: “Let’s not waste time trying to understand what people want, I know already.”
Beyond personality traits, I believe the way entrepreneurs learn influences whether they make the same mistakes as others, or avoid them.
Is Failure A Good Teacher?
It has become cliché to say that entrepreneurs learn from failure. Quotes from famous individuals like Thomas Edison and Winston Churchill reinforce this message endlessly.
It is a typical case of the illusory truth effect: this maxim has been repeated so much that we’ve come to believe it’s true, as familiarity creates a sense of credibility.
Success is the ability to go from failure to failure without losing your enthusiasm.
Winston Churchill
I’m grateful that voices have emerged in recent years to remind us that failure is not the goal of entrepreneurship. Research has proved that Founders learn more from analyzing their successes than their failures.
Successes provide clear signals about what works and why, enabling entrepreneurs and Investors to replicate and refine winning strategies. Failures, while valuable for avoiding pitfalls, often lack the actionable insights that come from understanding why something succeeded.
Read: “Smart money is just dumb money that’s been through a crash.” – Naval Ravikant
How Successful Entrepreneurs Learn: “Nerds” Prevail
We should approach entrepreneurial learning types more broadly to understand how successful Founders avoid typical mistakes condemning other entrepreneurs.
I’ve worked closely with entrepreneurs since 2008, as an Investor first, then as an advisor and mentor. Some of them became widely successful, while others never emerged. Based on this experience and my research, I believe that successful entrepreneurs are exceptional at adapting newly-acquired knowledge to a specific action plan.
Let me share two examples.
I trained hundreds of entrepreneurs on my e-learning platform, when it was still open to them (it’s now focused on VCs). Most of the best-performing Founders used all the resources on the platform, went down every rabbit hole, and completed all their “assignments.” They were thorough and avid learners.
By contrast, the average-performing entrepreneurs tended to learn at the last minute—I had precise reporting on when and how long they used the platform—or not at all, relying on instinct and their improvisation capabilities over structured learning. Most of these Founders struggled to improve their pitch decks and effectively convince potential Investors.
I started reading quite a bit about rockets to try to understand why they’re so freaking expensive.
Elon Musk (Source: Computer science museum)
The second example comes from training five cohorts of Shark Tank’s French version, over 200 entrepreneurs in total. One ability I paid attention to was the rate of progress between our first coaching session, which took place during the summer, and the second one in early September, a week or two before starting shooting.
I didn’t run the statistics, but anecdotal evidence suggests that those who implemented action plans we determined together to improve their pitch and attractivity to the program’s Investors had better odds of raising money.
Many highly successful entrepreneurs, including Elon Musk and Peter Thiel, emphasize the role of structured learning in their thought process.
Of course, these observations rely heavily on anecdotes and are not statistically valid samples. While they illustrate key patterns in entrepreneurial learning, individual success stories don’t necessarily generalize. To gain a more robust understanding of how successful entrepreneurs learn effectively, we now turn to academic research.
The Dynamic Model of Entrepreneurial Learning
Studies carried out in the past twenty years have identified several key patterns in how successful entrepreneurs acquire and apply knowledge. One of the earliest academic papers on this question proposed a dynamic model of entrepreneurial learning.
Successful entrepreneurs tend to resort to past knowledge to make decisions, reinforcing strategies that have worked before. But when faced with a novel problem, they experiment until they find a workable solution, which then enters their mental toolbox for future use.
This trial-and-error learning pattern—decrypted here a decade before The Lean Startup—may lead to suboptimal results, but they accept it. Entrepreneurs who find solutions that seem to work stop searching for better alternatives, a tendency known as path dependency.
Entrepreneurs process information, make mistakes, update their decisional algorithms and, possibly, through this struggle, improve their performance.
Maria Minniti & William Bygrave – Entrepreneurship Theory & Practice (2001)
This theory of entrepreneurial learning may help answer this post’s central question: why do so many Founders make the same mistake in believing their product has a market?
These entrepreneurs rely on past knowledge even when facing a novel challenge. Instead of recognizing their market as unknown and iterating toward product-market fit, they assume what worked before will work again. This cognitive shortcut—called myopic foresight—leads entrepreneurs to affirm demand based on erroneous assumptions rather than objective validation.
Selecting Entrepreneurs Based on their Learning Style
Investors spend a lot of time evaluating market potential, financial metrics, and team composition. But one of the strongest predictors of long-term success is often overlooked: how a Founder learns.
Instead of waiting for entrepreneurs to make the same costly mistakes, VCs should assess Founders’ learning process upfront. The best Founders process information systematically, refine their approach based on successes and failures, and integrate insights from multiple sources.
VCs should pay attention to subtle cues and orientate the discussion to collect data on the Founders’ learning styles during due diligence: Do the Founders iterate blindly, or do they analyze what works and why? Have they demonstrated the ability to adapt when new data contradicts their assumptions? How do they describe past challenges? Do they focus on what they learned rather than just what went wrong, blaming external circumstances.
At the end of the day, backing a startup is betting on the Founder’s ability to learn, adapt, and refine their execution over time.
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