Early stage companies often have little revenue and few customers. Because of this, investors need to believe that the founders can execute on the visions that they are selling. The team is one of the major factors that investors will typically look at to determine the likelihood that the company will succeed.
How qualified is the team to be working on the problem they have chosen? Do they have experience in the industry? Do they have some unique insight that no one else has?
Academic or employment experience
Investors often use the companies or academic institutions that founders and early employees have been associated with to make quick assessments of the quality and experience level of the team. While understanding founder’s experience is important, it is also one place where investor’s bias can trip us up: we tend to value experience at companies we’ve heard of over ones that we haven’t, or education at the schools we went to or that are in our country over others. Be ware of your own biases.
Team dynamics refers to how well a team functions, and determining whether they’ll work well together in the future. Evaluating a company on this criteria might mean looking at how long the team members have known each other and whether or not they have worked together before. It also means paying close attention to the relationship and interactions between team members in meetings.
Is there any obvious tension or misalignment between founders? Is everyone in agreement about roles? Are they talking over each other? Is there a team member that is missing from every meeting?
Founder disputes are one of the most common reasons that companies fail, and so understanding team dynamics will be an important factor in the decision to invest or pass.
Diversity, skill sets, & technical ability
When evaluating a team, investors look at the diversity of skills and experiences the founders bring to the table. Do they have the expertise needed to actually execute on their solution? If they don’t, what is their plan to add the needed expertise to their team?
You may also choose to consider the diversity of experiences the founders bring to the table. Do they bring different educational backgrounds or experiences that will help them see problems from more angles? Does the team reflect the makeup of the market they are trying to reach or the team they will ultimately need to build? This may be another edge the team brings to the table.
Team’s past accomplishments
Has this team built a company or a product before? Have they ever raised venture capital before? Is there some other notable accomplishment in their past that might reflect on their ability to build this company? Past accomplishments can provide great signals that a founding team has what it takes to execute on their idea.
No technical co-founder
A company that is building a product that requires technical skill, but has no technical co-founder, may be reason for pause. Very often you’ll meet a founder, or founding team, with a great idea, but no way of executing it until they find technical talent. Dig deep into these team’s plans before moving forward – the success or failure of a startup very often lies in execution.
Part-time founder commitment
If a founder is not working on the product or business full-time, that is usually an indicator that you’ll want to ask more questions about why that is, and what their plans are to make the company win. Growing a successful startup is often gruelling work, and requires commitment far beyond 9-5. Understanding a founder’s commitment to the project’s success will be a key factor in your decision.
As an investor, you want to ensure that companies you invest in are set up to succeed. Building a company is challenging – and doing it alone can be even more so. Because of this, some investors also feel that solo founders are less likely to succeed in the long run. Some investors may also prefer to avoid solo founders because they see this as a signal that the founder has been unable to convince others of the merit of their idea.
There has yet to be any conclusive data to support this, but the high number of large companies with multiple co-founders has led the investment market away from solo founders.
Many startups pivot – the product you initially invest in may bear little resemblance to the product that takes a company to growth and scale. But often, the people will remain a constant.
An investment is the beginning of a long-term business relationship with the founders and their team. Be sure you’re asking the right questions to evaluate whether that is a relationship you’ll be glad you initiated.