Key Takeaways
- Leo Polovets points to the classic pottery class experiment to explain deal calibration: volume drives pattern recognition, while limiting dealflow to one curated pitch a week leaves investors poorly calibrated.
- Susa Ventures missed out on Checkr and Faire during their first rounds because both companies skipped standard seed pricing and jumped directly to Series A valuations.
- Passing on deals strictly due to round pricing produced the firm's costliest regrets, as both skipped investments eventually grew into multi-billion-dollar and ten-billion-dollar companies.
- Paper markups create misleading feedback loops during a startup's lifecycle; Polovets ignores interim valuation gains until liquidity materializes through exits or secondary sales.
Calibration Requires Volume, Not Premature Filters
Polovets challenges the assumption that experienced venture investors should narrow their top of funnel to a handful of pre-filtered pitches. Over a decade co-founding Susa Ventures and running Humba Ventures, he saw peers attempt to engineer efficiency by meeting only one founder a week who matched a predetermined pattern. In practice, premature filtering ruins market calibration.
To illustrate the point, Polovets cites the pottery class experiment where a professor split students into two cohorts. The first cohort was graded on the quality of a single pot, while the second was graded strictly on the total weight of pots produced. The volume group ended up producing the highest-quality, most creative pieces because continuous repetition drove learning and iteration. Early-stage venture follows that dynamic. “It's very hard to pick out companies if you just don't take a lot of meetings,” Polovets says. Without steady repetitions across the broader market, an investor loses touch with baseline quality and risks mistaking ordinary execution for extraordinary potential.
The Expensive Cost of Price Discipline
In early-stage venture, standard pricing discipline can turn into a fund-limiting error. Polovets points to price sensitivity as his costliest tactical mistake. When evaluating Checkr and Faire during their initial rounds, Susa liked everything about the teams and their target markets. The only issue was price: both startups bypassed standard seed round levels and raised at Series A valuations immediately.
Susa passed on both companies purely because of round pricing. Years later, both grew into multi-billion-dollar and ten-billion-dollar enterprises. Polovets notes that early-stage tech returns follow extreme power law dynamics, meaning that initial valuation variance is trivial next to missing an outlier. If an investor recognizes genuine company quality, walking away over valuation risk trades a minor cost reduction for missing a multi-billion-dollar return.
Paper Markups Distort the Feedback Loop
Many funds calibrate their investment judgment using paper write-ups from follow-on rounds. Polovets rejects this practice. Because interim markups often reflect temporary market momentum or aggressive syndicate terms rather than underlying business durability, they inject false signals into an investor's decision process.
"DPI is king," Polovets notes. He avoids drawing conclusions about an investment decision until capital returns through an exit or a secondary transaction. Until cash returns to LPs, paper markups remain theoretical. Counting unrealized gains as proof of skill leads early-stage managers to validate flawed heuristics years before liquidity confirms whether the underlying asset actually works.
Why It Matters
The tension between early-stage entry prices and eventual outcomes highlights why classical private equity price discipline fails in outlier-driven venture models. In power-law markets, protecting against near-term downside valuation systematically screens out the rare generational winners. Meanwhile, institutional LP demand for liquidity is forcing managers to decouple underwriting discipline from paper marks, treating interim TVPI as noise until cash distributions clear.