⏲ Read Time 4-minutes
Why VCs Must Go Beyond Research: Lessons from Redfin
A company can look perfect in a pitch deck and fail in the real world. As an early Redfin employee, I saw firsthand how investors who used the product had a deeper, more accurate understanding of its potential than those who relied solely on spreadsheets and market reports.
📰 Key Highlights
Not All Due Diligence is Equal: Research-driven investors saw Redfin as a search engine; hands-on investors understood it as a new way to buy and sell homes.
The Clubhouse Effect: Many investors missed Clubhouse’s fatal flaw—its reliance on real-time engagement—because they never actually used the product.
Zillow & Redfin's Cozying Up: The new rental partnership has sparked acquisition rumors, raising the question: If Zillow truly understood Redfin’s model earlier, would they need to buy it now? (GeekWire has the latest.)
🚀 Why Hands-On Due Diligence Wins
In 2006, I was on the front lines of Redfin’s deal flow in the Bay Area. I spoke with countless VCs and quickly learned how to serve up the metrics they wanted: transaction volumes, revenue models, market size. But a clear divide emerged—some investors relied on data alone, while others tested the service firsthand.
The research-only investors asked about unit economics but never booked a tour.
The hands-on investors acted like real customers—navigating the site, working with agents, and spotting friction points firsthand.
The difference in their understanding was night and day. Research-driven investors saw Redfin as another Zillow competitor. The ones who used the product recognized it as a fundamentally different way to buy and sell homes.
Numbers Don't Tell the Whole Story
A startup can show strong customer acquisition, but what if the product is frustrating? A platform can boast viral engagement, but does it actually create lasting user habits? Research can’t answer these questions.
Example: Clubhouse – Investors who analyzed engagement metrics saw a winner. Those who actually used the app noticed the flaw: it required too much synchronous attention. It wasn’t built for sustainable consumer behavior.
Example: Subscription Businesses – If an investor only looks at ARR but never tries to cancel a subscription, they might miss predatory retention tactics that drive lawsuits and regulatory scrutiny.
The best investors don’t just look at the data—
they act like customers.
-MD
The Smart VC Playbook
Before writing a check, investors should:
Use the product repeatedly. Not just once—long enough to see strengths and weaknesses.
Compare it to competitors. If there’s a better option, users will find it.
Test onboarding and cancellation. If leaving is harder than joining, that’s a red flag.
Engage with customer support. The response time and quality say a lot.
Talk to real users. What keeps them coming back—or makes them leave?
Call to Action: If you’re a VC, challenge yourself—how many of your portfolio companies’ products have you actually used?
📊 Quick Stats
90% of VCs rely primarily on research when evaluating consumer startups.
72% of consumers say they would switch to a competitor after one bad experience.
The top 10% of venture returns often come from consumer businesses that nail product experience, not just market positioning.
🌐 Links & Resources
GeekWire: Zillow & Redfin Partnership – What this means for the real estate industry.
The Clubhouse Boom & Bust – A breakdown of why the hype faded.
💬 Final Thoughts
Great teams don’t always build great products. The only way to know for sure is to use the product yourself. Research is table stakes; experience is the real edge.
Maximillian Diez, GP, Twenty Five Ventures
This tech company grew 32,481%..
No, it's not Nvidia. It's Mode Mobile, 2023’s fastest-growing software company according to Deloitte.
They’ve just been granted their Nasdaq stock ticker, and you can still invest at just $0.26/share.
*Mode Mobile recently received their ticker reservation with Nasdaq ($MODE), indicating an intent to IPO in the next 24 months. An intent to IPO is no guarantee that an actual IPO will occur.
*The Deloitte rankings are based on submitted applications and public company database research, with winners selected based on their fiscal-year revenue growth percentage over a three-year period.
*Please read the offering circular and related risks at invest.modemobile.com.
P.S. Stay with me on this journey.
If nothing else, thanks for reading.
