Product-and-People Venture Diligence
Test the customer problem, technical feasibility, economics, and founder judgment
- Difficulty
- Advanced
- Time to result
- ~weeks to results
- Steps
- 7
- Confidence
- 96%
This framework evaluates an early-stage company from the bottom up rather than beginning with a fashionable market theme. The investor first investigates what customers care about and whether the problem is important enough to justify a new company. Technical specialists then test whether available technologies can solve it meaningfully, while customer conversations reveal willingness to adopt and pay. Because much remains unknown at seed stage, the founder is assessed for clear thinking, situational awareness, learning speed, and the ability to assemble changing pieces. The final layer determines what sales, marketing, pricing, and follow-on capital the product will require. The output is not merely a verdict on current technology, but a judgment about whether the people and product can navigate toward a durable business.
Origin
Extracted from Masters in Business, where Greg Sands described the product-management questions and operating support behind Costanoa Ventures’ early-stage investment process.
Core principles
- 01Treat the company as the unit of analysis
- 02Invest in a founder’s vision and ability to think
- 03Start with a consequential customer problem
- 04Confirm that current technology can solve the problem
- 05Match commercial infrastructure to the product and market
How to run it
- 1
Define the customer problem
Identify the specific customer, the job they need done, and the cost of leaving the problem unsolved. Reject opportunities built around interesting technology without a sufficiently important use case.
Pro tip Ask customers how much time, money, or risk the current problem creates.
Watch out Enthusiasm from the founder is not evidence of customer urgency.
- 2
Gather market evidence
Talk directly with customers and prospects to learn what they value, how they currently cope, and what would trigger adoption. Compare their answers rather than relying on one supportive reference.
Pro tip Seek disconfirming interviews as well as friendly introductions.
Watch out Do not mistake general interest for willingness to buy.
- 3
Test technical feasibility
Use relevant technologists to determine whether current tools can solve the problem reliably and meaningfully. Separate a plausible demonstration from a product that can operate at customer scale.
Pro tip Focus technical diligence on the assumptions that would kill the business if false.
Watch out A technically impressive product may still deliver too little practical value.
- 4
Assess founder cognition
Evaluate the founder’s vision, learning speed, situational awareness, and response to inconvenient evidence. Look for someone who can revise the route without abandoning the destination.
Pro tip Explore past decisions to see how the founder incorporated new information.
Watch out Charisma or certainty can conceal weak judgment and a reality-distortion field.
- 5
Quantify customer value
Estimate the economic value of the solution and determine whether it supports viable pricing. Connect that price point to acquisition costs, sales complexity, and market size.
Pro tip Express value in a customer metric such as hours saved, revenue gained, or risk reduced.
Watch out A real problem may still be too small to support a venture-scale company.
- 6
Build the commercial system
Determine the sales and marketing infrastructure suited to the product, customer, price point, and market. Add operating support where product-oriented founders lack commercial experience.
Pro tip Design the go-to-market model around actual buying behavior rather than copying another startup.
Watch out Hiring a generic sales leader before understanding the sales motion can waste capital.
- 7
Check financing continuity
Confirm that credible investors could support later rounds if milestones are met. Ensure the company can reach the next proof point without depending on ideal capital-market conditions.
Pro tip Define the evidence a Series B investor would need before committing seed capital.
Watch out A sound company can still fail if its capital requirements exceed realistic financing access.
In the wild
An investor learns that analysts spend a large share of their time locating and interpreting internal data. Customer interviews confirm the cost, technical diligence shows that machine learning plus human input can outperform manual documentation, and the founders demonstrate strong product judgment. The team then maps an enterprise sales motion and reserves capital for follow-on rounds.
→ The opportunity passes diligence because it joins a costly problem, feasible technology, capable founders, and an appropriate commercial model.
A seed team presents impressive automation software, but interviews show that customers lose only a few minutes per month to the problem. The technology works and the founders are capable, yet the estimated value cannot support the required sales effort or venture-scale returns.
→ The investor declines before product excitement overrides weak customer economics.
Common mistakes
Starting with a fashionable category
Choosing a theme first and then forcing a company into it can hide weak product and founder fundamentals. Sands instead describes a micro, bottom-up discipline.
Backing technology instead of cognition
At seed stage, the product will change. Assessing only the present technology ignores whether the founder can learn, adapt, hire, and navigate uncertainty.
Ignoring the commercial infrastructure
A strong product still needs sales, marketing, pricing, and financing matched to its customer and market. Generic growth tactics can undermine an otherwise sound company.
Is it for you?
Best for
It is best for seed investors and operators evaluating pre-revenue B2B technology companies.
Not ideal for
It is less suitable for momentum-driven consumer products whose adoption depends heavily on taste, virality, or luck.
From the transcript
“We're asking the same questions that the founder should be asking his or herself, which is what the customers care about. Is this a big…”
“the company is the unit of analysis here”
From the episode
Greg Sands Discusses Technology and Investment
Greg Sands