As a seed stage investor, we have the privilege to meet founding teams on a daily basis. At such an early stage, this small team is usually the only asset that the company has, and therefore, provides the clearest indication of future success. Based on our experience, there are common qualities that strong teams usually have, and understanding them may benefit anyone who is looking to start a company.
A strong team needs to be a self-sufficient team. Early on, this means having founders who possess the core skills required for understanding what product to build, how to build it, and how to sell it.
It is true that hiring employees to fill certain gaps and/or strengthen the team may be an option. Having a self-sufficient team, however, would result in the ability to move even faster, as there is less dependency on finding the right people and convincing them to join.
A self-sufficient team also means having co-founders who are willing to get their “hands dirty”. We recently evaluated a team of founders in which the future-CTO was a guy who in the past 10+ years managed a group of 100+ engineers. Even though such a founder may be ideal for the scale-up phase, it also meant that he was far removed from writing code and was planning on hiring a relatively large group of developers to get the job done. Effectively bringing everything to halt until the right talent is found, while also dramatically increasing the burn rate.
Great Working Relations
Since the process of building a company from scratch is demanding and stressful, it is crucial to have a team with great working relations. This does not mean you must start a company with your childhood buddy, but it does mean that the founding team should have high-level of trust and respect for each other.
This is why trying to find the right co-founder/s from your own network makes a lot of sense, as it allows you to assess this kind of subtle fit more easily. This is especially true when there is a shared history of working together, and ideally in a demanding environment (in Israel, for example, it is common to see teams of co-founders who served in the military together). Once the immediate network has been exhausted, it may be time to move to second-degree connections by leveraging the network of people you trust.
Regardless of how the founding team came to be, they should consider working together on certain aspects of the business before committing fully. This may include working on getting feedback from potential customers, developing the preliminary MVP design, engaging with industry participants or whatever fits their specific business. By doing this, founders can test their working dynamic before formally founding a company and assigning equity.
Deep Domain Expertise
No matter which industry the team is trying to disrupt, finding a real need for a new product is extremely challenging, and therefore, having substantial industry experience can turn out to be a huge plus. Having such an experience can give investors the confidence that the proposed solution is feasible, provide the company with unique access to customers/partners and even help explain why this specific team was the one able to identify this market gap. One of our portfolio companies that operates in the security space was even able to make numerous hires of highly skilled employees, within a matter of weeks, by simply recruiting people who served in the same Israeli intelligence unit that the founders served in a decade ago. Finding this kind of talent elsewhere would have taken them multiple months, if not years.
There are industries, however, in which the status quo is so broken and inefficient that having a fresh perspective can be even more valuable than having an industry experience. Since a dramatic paradigm shift is needed, being on the outside looking in can help build a solution that shakes things up. Many of our most exciting portfolio companies that operate in what would have been considered broken and boring industries — including banking, payroll and even roadside assistance — were founded by teams that had limited experience with the domain going in, but were able to create breakthrough solutions nonetheless, driven by their willingness to think differently.
Grow with the Company
As the company grows, the responsibility of the founders expands dramatically. Therefore, a great founding team will have founders who are fast learners and can adapt throughout these changes — moving from managing everything end-to-end to managing people and processes. This is perhaps the hardest quality to predict in advance, but a good indication can be a team that is open minded and reacts well to feedback.
Even if some (or all) founders are unable to scale with the company, it does not mean that the business is going to fail. In a scenario were the founders can build a big enough company before reaching their own glass ceiling, the option to hire the right people to take on the business and scale up the company is suddenly an option. This would allow this type of founders to focus their energy on the thing they do best: jumpstarting new businesses.
Few Words about Sole Founders
There are situations in which having “just” a sole founder would be enough to be considered a great “team”. This is often the case when the founder previously started a successful company, or ideally even several. Such a founder usually learned a lot from his/her own mistakes and knows what it takes to build a successful VC-backed business. One of the most impressive founders we met recently, was even able to bring to his new company several high-caliber individuals from his previous venture, effectively accelerating his new company development pace. It comes, therefore, as no surprise that investors love to fund serial entrepreneurs.
If you are currently on the hunt for the “right” co-founders, these common qualities will hopefully provide you with a north star of what to look for. Good luck!