Every founder who has progressed onto our due diligence knows that we love making reference calls. We like to talk to co-founders, key employees, at least five customers, a handful of business partners or stakeholders, other investors, and even college professors! For us, a reference call is as sacrosanct as a term sheet!
Over the years, we have learned a good deal from our failures, and successes. Knowledge gained is winning half a battle, knowledge shared is winning the world! Being true to our words, we want to share our experience with the world.
How can you make productive reference calls?
1. The more the merrier
The good, the bad, and the ugly: With more emphasis on the bad and the ugly. Why? Because we know differences of opinion will always remain, but it takes strong principles to still be connected to someone who is a negative reference, and even more courage to connect them for a reference call
2. Lookout for lavish feedback
The moment you put the phone down, another call will go directly to the candidate telling them everything we spoke about in detail. And this is not necessarily bad. All questions go back to the source!
3. Drill down on specifics
Everyone can say "Oh they are a delight to work with", but the devil lies in the detail. Can they share an example? Or three? This helps understand a pattern.
4. Seek discomfort
This is especially with the bad and the ugly references. You can start with "I have heard glowing references for a couple of people, however, some also said X..." And then wait for the ball to drop, or not. You need to go with the assumption that the candidate or the founder is great, however you do not want to be blindsided by something.
5. Always a scope for improvement
Accept it. Do not fuss over it. Focus on areas of improvement.
6. Lead calls with examples
After a couple of calls, you will understand a pattern, and you can lead calls with that pattern. You can say "Some people said THIS about him, what is your opinion on how it can be improved?" You are not letting them say No, he is not like that. You are asking them to elicit an opinion. This also helps you understand the depth of the relationship and the quality of the reference.
7. Seek more
Some of the brilliance in reference calls is getting "other" references. Someone who is not a directly listed reference. Someone who might have nothing to win or lose, and is more likely to be honest. End the call with asking "Hey thank you so much for this call, do did mention X worked with you in a team of 4. Can you please help me speak to someone else in that team as well?". Get ahead of the agenda. Dig deeper. We have found that LinkedIn also helps.
8. Team up
Many times asking difficult questions that reach back to the source can lead to starting off the relationship in a tricky way. One way to get past this is to have someone trusted on your team do some of the dirty work. Many sophisticated investors or recruiters completely outsource this as well. But we prefer to keep it in our network.
9. Keep your mind open
Yes, you are trying to seek discomforting evidence. But do not base your interpretation of the calls based on that one piece of evidence. There are two sides to every coin. Your job is to get reasonable clarifications.
10. You will learn on the job
You will not learn via these tips. The best way to learn is on the job. So go ahead and start making these calls.