The Four Fits of Early-Stage Investing

A Framework for Outsized Outcomes

All models are wrong, but some are useful. —George Box

Order and simplification are the first steps toward the mastery of a subject. —Thomas Mann

Above: One's company, two's a crowd, three's a party, and four’s…everywhere?

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If one is the loneliest number, four might be the most popular.

As I was reflecting on the “Four Fits” idea, it struck me how prevalent the number four was in frameworks, paradigms, and more.

There are four suits in playing cards, Four Horsemen of the Apocalypse, four elements of the physical universe, four kinds of love, four cardinal directions (let alone virtues), four quadrants in a Cartesian plane, and much, much more.

I love the simplicity and functionality that these models provide. They guide, direct, orient, and instruct.

But I digress. The last thing I need is to turn into Jim Carrey from The Number 23…

I have written before about my Horse Racing Theory of Investing:

Startup investors must invest in the right jockey (i.e. team), riding the quickest horse (i.e. the product/service), running a race (i.e. attacking a problem or going after a market) where both rider and steed have an unfair advantage (i.e. superior technology, experience, or distribution).

This is instructive, but not enough.

It’s a two-dimensional approach to a three-dimensional problem. I mean, Andre the Giant could never make a good jockey, any more than Bambi could win the Triple Crown. The interaction between the constituent parts (and the world) matters just as much as the parts themselves do.

And so, into this fracas of fours I hurl the Four Fits of Early-Stage Investing. Like the pillars below, each one is essential to support the outcomes necessary for true venture bets.

1. Founder – Problem Fit

• Definition: The founder's unique connection to the problem, rooted in personal insight, struggle, and passion.

• Question: Is this founder uniquely wired to crack this problem?

• Essence: "If you’re not passionate enough from the start, you’ll never stick it out." —Steve Jobs

2. Product – Market Fit

• Definition: The product's natural appeal and demand within its target market.

• Question: Are customers lining up for this solution?

• Essence: "Make something people want." —Paul Graham

3. Market – Outcome Fit

• Definition: The market’s ability to fuel growth and investor ambitions.

• Question: Can this market deliver a big win?

• Essence: "Great markets make great companies." —Andy Rachleff

4. Revenue – Valuation Fit

• Definition: The harmony between the startup's revenue/potential revenue and its valuation.

• Question: Does the revenue promise justify the price tag?

• Essence: "Price is what you pay, value is what you get." —Warren Buffett

Armed with these four fits, third first time may be the charm for early-stage investors.

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Per my about page, White Noise is a work of experimentation. I view it as a sort of thinking aloud, a stress testing of my nascent ideas. Through it, I hope to sharpen my opinions against the whetstone of other people’s feedback, commentary, and input.

If you want to discuss any of the ideas or musings mentioned above or have any books, papers, or links that you think would be interesting to share on a future edition of White Noise, please reach out to me by replying to this email or following me on Twitter X.

With sincere gratitude,

Tom