That Don’t Impress Me Much: Investor Insights on the Worst (& Best) Qualities of Startup Founders
*disclaimer: these opinions are the writer’s own and do not represent the VC/investor community as a whole.
When evaluating startups for potential investment, many VCs would agree that the founding team is paramount; more important than a great product, more important than a huge market or first-mover advantage. A company led by strong, experienced founders with a diverse skill set and relevant expertise has the best chance of success: they are the fuel that powers the engine.
“But surely the technology is just as important?” I hear you cry. Is it important? Yes. But is it paramount? No. You know that saying, “a leopard can’t change its spots”? This illustrates why a bad founder can jeopardise an otherwise great company; it may be the sole reason why a VC chooses not to invest. Other areas where a startup may have weak spots, like a poorly designed UI or an unattractive business model, can be worked on. A company can pivot, develop the product or service, iterate the model. All other aspects of the business can change. But if one of the founders is problematic from the start, this is a major red flag. The likelihood of them causing even bigger problems for the company later is too high to take a risk. According to Entrepreneur Europe, it’s the #3 reason why startups fail (behind no market need and running out of cash).
So the key question here is, what makes a good founder? What traits do we look for in a core team, and what fatal flaws do we avoid? Here’s a rundown of what impresses a VC, and the red flags that make us run for the hills.
Fatal Flaw #1: You’re full of it.
Warning signs: It sounds too good to be true… and it probably is.
Cut the bullshit. A lot of people embellish their CVs or exaggerate certain work experience, but if you fabricate facts and numbers, we’re going to find out sooner or later. Honesty, integrity and transparency will score you way more points than spouting unrealistic sales forecasts and unattainable KPIs. Make sure you can back up your claims with research and statistics. And while we’re on that topic…
Don’t tell me you have no competition. A competitor is whoever tries to solve the same problem for the same customer, even if they use a different method. Also think about what companies could easily pivot into your space or enter your market. It has happened on several occasions where a startup has told me they have no competitors, yet I could think of at least 2 off the top of my head. This tells me that either:
a) you haven’t done your research and don’t know your market, or
b) you’re lying to me.
Either way, you don’t look good. The best way to prove your worth is to put your money where your mouth is. Impress us with quantifiable results and traction; not with unsubstantiated claims.
Fatal Flaw #2: Over inflated ego
Warning signs: sense of entitlement, astronomical company valuation without basis, proclaims to be “the next Steve Jobs”
A big ego can get in the way of building and nurturing relationships with your team members, your customers, partners and investors. I will believe you are the next Mark Zuckerberg when you show me your first billion; until then, please leave your Messiah Complex at the door. Some founders feel that because they previously worked in a well known corporation, or have a PhD, or went to the best business school, that they deserve special treatment. Although I’m happy for you and may have extra confidence in your abilities, it doesn’t mean you’re exempt from having to prove yourself. On the contrary, we’ll probably have even higher expectations of you to deliver results.
My advice? Be humble. Admit that you’re not perfect; find co-founders who complement your skills and advisers/mentors who can support you in areas you still need to work on. Be willing to grow and learn, be open to constructive criticism and admit when something isn’t working. I may be overdoing the idioms here, but pride comes before a fall, my friend.
Fatal Flaw #3: You’re missing something
Warning signs: A lack of soft skills, too much emphasis on one skill area (e.g. engineering)
You may have heard of ‘the Hacker, the Hipster & the Hustler’ to describe a tech startup’s dream team; a phrase coined by Rei Inamoto, Chief Creative Officer at AKQA. The idea is to illustrate that a balanced set of skills and experience is required to build a successful company. The Hacker is the tech guru who can build the product, the Hipster is the design/UX person who really understands the user, and the Hustler can go out there and sell it (usually as CEO). If you’re lacking in one of those key areas, you’ll have a struggle ahead. Is there a founder in your team who can own the technology and build a team of developers to create a stable, scalable product? Is there a founder who can own the product UI/UX, focusing on product market fit and user needs? Is there a business-oriented founder who can manage the team, secure funding and build a solid financial model, who can sell your big vision? Do you have industry expertise in-house?
If the answer to any of these questions is no, your founding team may be lacking a vital component. A big mistake that some founders make is that they don’t want to share equity, so they try to limit ownership to 1 or 2 founders. Otherwise known as ‘cutting off your nose to spite your face’, only your company will suffer if you can’t admit that you lack an important business skill [see ‘over inflated ego’ above]. Set up an ESOP (option pool of shares) to show us you care about incentivising your team and promoting long term commitment.
Accentuate the Positive
I don’t want to sound all negative, so here are some positive traits that VCs looks for in founders. If you possess some or all of these qualities, your investor relationships are bound to blossom!
Passion: Make me believe what you believe! Passion is contagious.
Tenacity: Be determined and never give up. Know when to pivot (and not flog a dead horse), but changing direction doesn’t have to mean the end of the road.
Agility & adaptability: Startup speed means learning on the fly and being flexible; a plan is only a plan until there’s a new plan.
Ambition: Are your sights set on world domination? Good. Start with a beachhead market, but think global.
Resilience: You’re going to get some hard knocks along the way. When you’re down, just keep getting right back up again.
Competence: Are you an expert in your field? Do you know your market inside out? Can you execute a plan efficiently? We’ll sleep easier knowing you’re the right person for the job.
Emotional Intelligence: I mentioned soft skills above; I can’t stress how important it is to have a CEO or leader who possesses empathy, good communication skills, patience and understanding, along with a host of other interpersonal skills that foster trust, good working relationships and a productive work environment.
Self awareness: Without this, none of the above advice will be of any use to you! Take the time to reflect on yourself, listen to feedback and always strive to be better.
So that’s it; my two cents on what qualities make for a great startup founder. In fact, these positive attributes also apply for anyone in a leadership role in any company. I hope you found these insights helpful; best of luck to all you fundraising founders!