Investible Founding Teams that raise venture capital

Investible Founding Startup Teams

Every founding startup team looking to grow more aggressively needs to raise investment from venture capitalists. The funny thing is that I don’t think founders think the team is nearly as important as an investor think it is!

Let’s look at the top 20 reasons for failure. See that team features prominently as the number 3 reason. Yup, it matters.

startup team

In this blog, I have written a presentation, delving into what ‘investible teams’ are. For those not inclined to read it, I’ll put down some extracts and high-level summaries. I recommend reading the deck, as you won’t get the details though.

So why do startup teams matter?

Data shows us that 60% of new ventures fail due to team problems.

In a recent study of 95 new startup teams in the Netherlands, HBS explored the question of high-performance teams (Check out this HBS blog).

  • They found that experience alone was not enough to make a team thrive. While experience broadens the teams’ resource pool, helps people identify opportunities, and is positively related to team effectiveness, a team also needs soft skills to truly thrive. Specifically, the study shows that shared entrepreneurial passion and shared strategic vision are required to get to superior team performance as rated by the external venture capital investors.
  • Of the startups they studied, the group that reported high levels of previous experience but average to low levels of passion and collective vision demonstrated weak team performance when it came to innovation in products and services, customer satisfaction, cost control, and expected sales growth. Contrary, the group of teams that reported average levels of previous experience but high levels of passion and collective vision demonstrated significantly stronger performance.
  • They also found that greater team experience only leads to better performance if team members share a strategic vision for the company. Thus, when team members don’t agree on the future strategy of the firm, the knowledge and skills they have will only marginally contribute to team performance.

That’s the academics, but just take it from VCs, like the ones you want money from:

“Having the right team determines the path and outcome of a new venture more than any decision in the lifecycle of a company,”
“I am fond of quoting that about 70% of my investment decision of an early-stage company is the team. My rationale is simple: everything goes wrong and only great teams can respond to competitors, markets, funding environments, staff departures, PR disasters and the like.”
– Mark Suster, Upfront Ventures

Simply put, in the early days, the founding team is the startup. It’s mainly the team, not the ‘idea’ they are backing. Indeed, you no doubt have heard of pivoting, right? Well quite often what ~seed stage investors back, may not end up being the end result.

Slack is a great example of this. Ben Horowitz (A16Z) talked recently about being an ‘accidental investor’ in slack. Slack  (now valued at $2.8 billion) came about after its founder failed to launch another idea.

Ben Horowitz, had two real options: Give Butterfield more money so that he could continue to build Glitch or get $6 million back from Butterfield and close down the business. But then Butterfield threw out a third option as well. His engineers had created a “little tool” internally to communicate with each other, and Butterfield believed he could get if off the ground with the $6 million in funding he had left.

Who do you need on the team?

A great founding team is very like the Avengers. You have highly capable people per se, but it is the complimentary combination of the founders which is key.
There are a number of ‘characters’ which play a critical role in a startup. It is likely that a team will not cover all of the required bases, and certainly, founders will play multiple character roles- founders should look to have strength in at least the key ones.
These are:
  • Visionary prima donna
  • Leader
  • Executor
  • Hacker
  • Sales superstar (rainmaker)
  • Product owner
  • Marketer
  • Veteran of industry
  • The numbers man

Key requirements for the founding team

There are a number of things founders need to agree amongst themselves when starting up, and certainly before they look to start raising money.
The key requirements are:
  • Who is the CEO
  • Founder team size
  • Complimentary skill sets
  • Leaders and managers on board
  • History of working together
  • Shared goals and work-ethic
  • Trust
  • Shared vision for the company
  • Aligned on equity shares and associated prenups

Traits investors look for in founders

As described above, investors invest in teams, but knowing what a great one is no easy task! As they tend to do when analysing business models and industries, they rely on heuristics, flags if you will, both positive and negative to form an opinion if this is the team for them.

If founders are aware, they can fake certain traits and avoid obvious pitfalls, but fundamentally a leopard can’t change its spots, and neither can founders.

While previous experience has often been cited as a key ingredient for entrepreneurial success, HBS results show that experience alone will not lead to success. Instead, knowledge, skills, and passion are equally important for succeeding as a new venture. Experience and expertise only lead to better performance if team members share their knowledge and have a common vision for the company.

These are the key things investors look for when scrutinising founders:

  • Team cohesion
  • Value culture and team
  • Customer knowledge and insight
  • Deep industry knowledge and technical insight
  • Product focused
  • Listen
  • Constant progress and improvements
  • Focus
  • Constant learning
  • Friendly, positive and optimistic
  • Don’t lie
  • Communicative
  • Lean and mean
  • Problem solving machines

Conclusion

In conclusion, founder teams define a startups ability to succeed and to what extent. Investors place tremendous import on teams, and make investment decisions based on them. It, therefore, makes incredible sense for founders to think very long and hard whom they are metaphorically getting into bed with.

Attending co-founder dating to find your startup team fundamentally is illogical as you have no history of working together. When the pressure piles on, people’s characters have a habit of changing. Without having weathered through this in some shape or form before, it is highly likely the company will fracture and lead to a blow-up.

In short, think about your founders as you would when proposing marriage. It’s more than likely you will spend more time with your founders than your husband/wife.

The startup team presentation

Investible founding teams Investible founding teams Investible founding teams Investible founding teams Investible founding teams Investible founding teams

Investible founding teams Investible founding teams Investible founding teams Investible founding teams Investible founding teams Investible founding teams Investible founding teams Investible founding teams Investible founding teams

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Comments 4

  1. Great presentation Alexander, I’m really glad I stumbled onto your website and resources. I plan to bookmark this slide presentation and use it as I build my team. Thank You,

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  2. Pingback: The definitive guide to validating your startup idea | The Independent

  3. Pingback: The definitive guide to validating your startup idea – The Independent Singapore

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