I am now an investor, both directly and through Techstars NYC, in 40 companies .
At Techstars, we look to back startups with good founders. The founding team matters a lot, and to me personally, it is a single biggest deciding factor for selecting a company. Not the size of the market, the team.
If investors don’t believe in the founding team, they will not invest.
Here is my take on what makes for truly great founding team.
1. Ability to grow the business.
Early stage startups are very much like babies. They need to grow. If the baby isn’t growing, it is not doing well. Same thing with the startup. Lack of growth is typically an indicator of things not going well.
To grow, the founding team needs to decide on key metrics and execute on those metrics. They need to show traction.
Put it simply, the founding team needs to have both intellectual ability and, more importantly, the actual capability to execute on the business. The ability to execute, make progress and grow, depends on several factors that we discuss below.
2. Intellectual honesty and curiosity.
Every business is fundamentally uncertain. We don’t know what is going to happen in the future.
All founders have to predict, project, make claims about the opportunity ahead. But different founders go about it in different ways.
Some founders pitch using vague, high-level concepts and don’t use data.
Others, explore, and pull investors into the exploration. A great exploration involves providing data about the opportunity, data about progress to date, and walk through the financial model, go to market, etc. to build the case for why the business might work.
Some founders use the language of certainty, while others are curious, conscious and intellectually honest about their journey.
Investors know that the journey of any startup is fundamentally uncertain, and look for founders who are intellectually honest and curious.
3. Complementary skills and chemistry.
Should the startup have 1 founder? 2 founders? 3 or maybe 5 founders?
The answer is – it really depends.
If you want to optimize for growth, and minimizing for the dilution that comes from having more than one founder, you can re-state the question:
What is the minimum number of founders, and what sort of founders do you need for this startup to work?
You could have single founder who can do it all. More typically you have 2 or 3 founders. They key thing is for the founders to be complimentary.
The teams that have complementary founders can divide responsibilities, focus and go faster. These teams can execute in parallel, and can grow the business faster.
In addition to complementary skill sets, great founding teams have good chemistry. They all share the vision, complete each other’s sentences, and exude more positive energy together than each founder alone.
4. Stellar CEO.
All founders are special, but the founding CEO of the company is particularly special.
It is up to the CEO, as the title implies – Chief Executive Officer, to lead the team.
Take a great CEO, and okay team and whatever problems come their way can likely be fixed. Take a mediocre CEO, and a stellar team and it will not work.
A startup founder/CEO shapes the vision, sets the tone, and defines the execution. The CEO defines metrics, defines product, motivates the team, and raises capital.
It is on the founding CEO to create a proof that the startup has the right to exist. It is on the founding CEO to lead the team to a liftoff.
5. Domain knowledge, relevant experience and defensibility.
Teams that know the space really stand out. Having the experience and knowledge really matters, as helps the team and investors mitigate the risk.
If you haven’t worked in the space before, investors will assume that you don’t have enough knowledge about it, and will naturally make mistakes.
Founders who have relevant experience and domain knowledge always stand out.
It is the level of rigor, the passion, and clarity with which founders speak about the business that really resonates with the investors.
Knowing the space and having domain knowledge typically helps founders come up with a defensible and differentiated solutions. When investors ask – what makes your solution different and defensible, the teams that have experience in the space are more likely to have a clear answer.
Having a vision, a true north for the business is a must.
For a great founding team, it is not enough to just fix a problem. A great founding team has a vision of what the universe should look like 3, 5, 10 years from now.
While flexible on tactics, and the paths, great founders aren’t flexible on destination.
From day one, the Vision guides the founders, and helps them make decisions about what the business is and isn’t.
A strong vision continues to motivate new employees as the startup grows and turns into a big company.
7. Product focus.
Even if your startup isn’t making software, you live and die with your product.
At Techstars we talk a lot about product-obsessed teams, and we see product-obsession as a key ingredient of success.
In the age of social media, and deeply interconnected world, it is basically impossible to win with a less than stellar product.
Whether you are making the next great CRM or consumer app or healthy soup company or opening new pizza place, you won’t survive for long if the product isn’t great.
Particularly at the early stage, founding teams who align around the product tend to be more successful and win.
What are some of the other things that you think define a great team? Please share your experiences in the comments.