Analyzing Venture Opportunities Part 2: Thinking About People

This is a followup post. See Part 1: the Product and Market!

“Founders matter most” is one of the most prolific philosophies in early stage VC. Most investors agree that the best companies are started by incredible people with ideas that aren’t so exciting at first glance.

Airbnb is one of the canonical examples here. Notice that most rejections cited the product or market. It’s possible that Team was the issue and some investors lied to not burn bridges, but I don’t think that’s likely given PG’s recommendations and the team’s storytelling ability.

So how should we think about early-stage teams when the product or market haven’t proved themselves yet? Here are a few things I look for. You can use this as a scorecard or checklist:

Deliberate learning. How does a founder take feedback? Are they coachable? Will they adjust to feedback in real-time? Best of all, do they aggressively seek out feedback when none is offered?

Recruiting ability. There are many ways that you can build a “recruiting unique value prop.” People like Saku are smart enough that I’d work for them to access novel, interesting ideas at the office. Other founders (think Steve Jobs) sell a magnetic vision. Some have a track record or network that makes success seem certain. Many strategies work. It’s a question of whether or not the founder is exceptional enough at whatever strategy fits them and the business.

Urgency/GSD/raw energy. Smart people can fall into the trap of being too intellectual rather than action-driven. Making the right decisions for the right reasons is obviously important, but at the end of the day, founders need to push hard and go fast for years.

Being very blunt or forward. It’s always a “no” when you don’t ask. Blunt and forward personalities tend to get straight to the core issue, put more shots on goal, and find common ground more quickly in my experience.

Making use of tools. Does the founder use software or people to be relentlessly resourceful? Have they hacked anything to their advantage? Do they use a relationship manager to be amazing at followups? Do they send over a link to mystartup.com/deck instead of a 40 character long Google Drive link? Have they automated energy-draining activities by scraping websites for sales leads? Reinventing the wheel indicates many many bad things like inflexibility and lack of prioritization. Founders should focus on their comparative advantage.

Being good (but not necessarily great) at everything. Hiring for “spikiness” is common advice. I think looking for what’s exceptional about someone and evaluating them on that dimension generally works well assuming they meet the minimum hustle/culture bar. But founders quickly become “editors” more so than “writers” as their companies scale. A strong intuition across all fields helps identify talent and align the company’s various specialists. This is partially why having a complementary cofounder is so important. (To be clear: founders should still be spiky, but those spikes should ideally be additive rather than trade-offs with other traits.)

Founder-market fit. People aren’t blank slates. What experience and personality traits are best for this business and team? Marketplaces may need hustlers, for example. Does the founder understand this and consider it in team-building plans? One big challenge is determining whether this company is the right fit or whether the founder is just a hammer that sees a nail. (E.g. I know the music space really well and I like math so I’m gonna start a music analytics company. Is this good, or is it just the random-chance combo of the things they happen to know best?

Are the cofounders ready to marry each other? This was alluded to above, but team dynamics matter a lot. Is there a complementarity? What happens if they get a divorce? A surprising number of companies have done very well despite cofounder relationships ending.

Do I want to partner with this person for 10 years? Investors (hopefully) spend a lot of time working with founders as a sounding board, advice-giver, and connector. If you’d have a hard time working with a founder for whatever reason, it’s probably not worth making the commitment.

What did I forget to mention? What metrics or litmus tests do you use to think about founding teams? Say hi! Email/Twitter on homepage.