At Fiat Ventures, we believe in keeping things simple.
It’s important in how we communicate, in how we divide our responsibilities, and most importantly, in how we make investment decisions. While we acknowledge that venture capital isn't a one-size-fits-all game, our mission is to identify entrepreneurs with the edge to build innovative products in promising markets.
This philosophy is primarily reflected in our investment approach, and captured in a rule we call “The Four T's". This can be summarized as:
Trust - Investing in fundamentals vs trends.
Team - The founder(s) who are turning their vision to reality.
TAM (Total Addressable Market) - The market's size and future potential.
Traction - Proven ability to achieve product-market fit through measurable results.
We weigh these factors in order of importance: fundamentals of a company, founder and founding team first, followed by total market size and then their track record of execution. As early stage investors, we define each of these factors based on the stage of the startup.
There are other factors, of course, that play into making an investment decision, but these four have proven to be the most consistent traits in our best performing companies.
Let’s dive a bit more info each.
TRUST: OUR UNIQUE ADVANTAGE
We invest in fundamentals, not just trends. It’s this “trust” factor that allows us to do just that.
We argue this is the most important factor and isn’t something that you can find in a pitch deck, Zoom call or in person meeting. It’s a factor that takes time to learn, to see and to understand as hands-on operators in a business.
Our vantage point is unique. We get to see wide across industries, and we get to work across all stages of companies.
While our backgrounds were rooted in fintech, we’ve since expanded into adjacent verticals and industries. This allows us to better understand where the fintech market is heading next, and most importantly, what companies and trends we should be backing. We call this broader trends “Fintech+”, or in short, the collision of finance with every major industry around us.
We also have a unique vantage point while partnering with Pre-Seed companies always to large, publicly traded firms like Mastercard, Progressive, RGA and many others. We can see what the market’s doing at the macro level, and then invest at the earliest stages in some of the best founders and founding teams.
This factor helps us de risk investments, even at the earliest stages of a company's life.
TEAM: THE FOUNDATIONS OF SUCCESS
We firmly believe that the team is the most critical factor in a startup's potential for success. When evaluating teams, we focus on three key aspects.
Founder Market Fit
We seek founders with unique insights into their market or product. The best founders are those building solutions for problems they've personally experienced or deeply understand, rather than trying to retrofit a product to a problem. This deep connection to the market often translates into a more intuitive understanding of customer needs and pain points, leading to more effective product development and market positioning.
Founding Team Dynamics
We place significant importance on the dynamics between co-founders including how they met, how long they’ve been working together, and key decision making. Approximately 23% of startups fail due to issues related to the founding team. We want to make sure that we can evaluate these signs early into a company's life.
It's not all about teamwork, however - we also need to see a clear captain who can make tough calls when the going gets rough. We want to know that the founding team knows how to divide responsibilities, but at the end of the day, there is a single decision maker who’s going to help steer the direction of the company.
A strong, cohesive founding team with complementary skills and aligned vision is crucial for navigating the challenges of building a successful company.
Serial Entrepreneurs
While not a hard set rule, in our experience, serial entrepreneurs tend to outperform first-time founders. They've already learned many hard lessons and can navigate challenges more effectively. We've also noticed that serial entrepreneurs often have a philosophy of wanting a smaller piece of a bigger pie, rather than a bigger piece of a smaller pie. This means that they share ideas, build a deeper bench of advisors and supporters, and find ways to attract and retain top talent.
As we move deeper into our due diligence efforts, we spend time with founders asking about their childhood and personal backgrounds to get a sense of their drive and motivation. This unique approach helps us understand the founder's background and what shaped their entrepreneurial spirit. Being a founder is incredibly difficult, we want to find teams with a chip on their shoulder and a relentless drive.
Our team at Fiat Ventures has been fortunate to have for and with some of the most successful founders in the fintech and startup ecosystem. We’re fortunate to have seen first hand what it takes to build market defining companies like Chime, SoFi and Ripple, and seek out these same characteristics in founders we back at the earliest stages. Through our growth consultancy, Fiat Growth, we’re fortunate to have continued to work with 200+ founders and continue to see these characteristics of success.
TAM: SIZING UP THE OPPORTUNITY
Total Addressable Market (TAM) is a term that refers to the total revenue opportunity available for a product or service if it achieves 100% market share. It’s the estimate of the overall demand for a product in a specific market today, and projecting how that evolves tomorrow.
At Fiat Ventures we like to not just evaluate the current market size today, but the potential for future growth. Our approach to TAM analysis is forward-looking, considering how many people a product can reach today and how that reach will expand tomorrow.
The reason we focus on expansive TAMs is rooted in the nature of venture investing, and a term defined as the Power Law. This principle refers to a concept that a very few number of companies or products generate the largest share of value or profits. This principle governs venture investing, and the fact that a very small number of companies end up reaching the scale all founders aspire for. The following graphic showcases the power law at work.
As power law investors, we're looking for investments that can yield 50-100x returns in 5-8 years. Smaller TAMs, regardless of how great the business might be, simply don't align with this goal. You can invest in the right company, but if the TAM is smaller, then there is no room to grow to reach the size and scale we’re looking for as venture investors.
As venture capitalists, our job is to envision the world a decade from now. When assessing TAM, we consider how the world is evolving. We naturally want to back founders who are building for tomorrow's more diverse or homogenous world, with a clear understanding of their current market entry point. This is a challenging balance for founders to strike – demonstrating traction in their beachhead market today while building towards a much bigger vision.
Mike Maples, the famous venture investor and founder of Floodgate Fund, aptly stated, "the founder's job is to tell us what they think the market size will be, and our job is to tell them if we believe them." This encapsulates our approach to TAM analysis—we challenge founders to think critically about their market potential and growth strategies. We push them to justify their TAM projections and to consider angles they might have overlooked.
Ultimately, we're looking for startups that can articulate a compelling vision of how they'll capture an expanding slice of a growing pie. It's about seeing the potential for massive scale, even if the initial market seems niche. This approach allows us to identify opportunities that others might miss, positioning us to back the truly transformative companies of tomorrow.
TRACTION: PROVING THE CONCEPT
We view traction through a unique lens that goes beyond traditional metrics like revenue or user numbers. For us, traction is about demonstrating a level of success that validates a startup's concept and potential.
While some define it strictly in terms of revenue, we take a more nuanced approach.
We're looking for evidence that a team can stay diligent, pivot if needed, and continue to build. This could manifest in various ways, such as successfully building and shipping a product, identifying a clear wedge in their beachhead market, or showing a clear path to converting users into paying customers. We value historical traction, which can come from serial entrepreneurs who have built and sold multiple products, or team members with significant experience in successful startups.
For startups without historical traction, we look for indicators in their current product, such as revenue growth, product stickiness, user engagement, or success in converting unpaid pilots to paying customers. We recognize that demonstrating traction can be challenging for first-time founders or in the early stages. In these cases, we're looking for the ability to will something into existence and create a meaningful fit with whatever they're building. It's about showing the potential to execute on their vision, even if the metrics are still developing.
Additionally, we value focus, at the early stages. Great founders recognize the dangers of trying to be everything to everyone too early, and want to focus on a “wedge” that allows them to enter and expand into a much bigger market.
CONCLUSION
To wrap it up, our Four T's framework — Trust, Team, TAM, and Traction—form a simple, yet comprehensive framework for evaluating potential investments.
It forces us to consider the most important part of early stage success, while also staying nimble to move quickly and to recognize opportunities.
We’ve been fortunate to leverage our unique position as consultants (Fiat Growth), advisors (Fiat Advisors) and investors to make informed decisions based on deep, firsthand knowledge of the startups we back. In short, we’re able to invest in fundamentals, not trends.
We're excited to continue this journey alongside incredible founders who are shaping the future of fintech. If you’re a founder who’s building the future of finance, we’d love to hear from you.
Drop us a line on our site and we’ll get in touch.
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