Do investors really not care about the startup team?
There was an article on The Observer earlier this year. Quite a nice read actually. It wasn’t insightful (most of the points covered there weren’t really what you would call revelations), but it surely was thought provoking.
Here is a link to the article:
I Slept With 65 VCs and Learned These Things
Our first suitor called us in the spring. They offered to pay for coffee. It was our first date. I had butterflies in…
And here is the part that struck me the most.
Most won’t admit, but VCs don’t care much about the team
I am with Marc Andreessen on almost everything he has said there, but not caring about the team part bugs me. Primarily because I saw this article, and in particular Marc’s quotes being used on a Quora answer on a question that had to do with a startup at idea stage — angel round, not even seed, would be my guess. Now I disagree with the analogy the author tried to derive from Marc’s statements, because I primarily think the above lines were said in context of a business in growth stage (or at least post-infancy). But I would be remiss if I didn’t stop to wonder — “I am not wrong here, am I? Do VCs not care about the team at all? Irrespective of the stage?”
In my view, this is who an angel investor is. A poker player. Well, in this picture, at least the turn has already passed us by (no idea about the flop or river). So think of the table before the turn. That is who I think an angel is. A poker player. Playing with just the hand he is dealt. And the hand is primarily the team he is considering to put money in. Can the turn, flop or the river completely screw him over? Sure. That risk is always there. But at the pre-turn stage, he has to play with just the two cards he has got — 1. The business, 2. The team
Whether it has market potential and/or is the market ready for a product like this.
Is the market big enough? Does the business have the potential to scale?
How are the margins? Are they so thin that in order for the business to be profitable, they need to be processing real high volumes? And if so, can they do that, and continue doing that in face of stiff competition?
There are a lot of such questions that the angel needs to ask themselves. Not many would go beyond the first couple, but few would walk the whole mile.
Now the tricky follow-up to the segment above. Even if you have the metrics right for a good percentage of questions you asked yourself, what if the team is shaky, doesn’t seem capable enough, passionate enough, or trustworthy enough. Would you entrust them with the path that is required for the business to succeed? Would you bet on them with your money?
Alternate scenario, the business metrics aren’t looking perfect. They are decent, but not perfect. But the team behind the business looks amazing. They have clarity of thought, a good approach to things, experienced. They just strike all the right notes with you when you are talking to them. Would you take a bet on their ability to improve on the business metrics?
In a perfect world, you would want both — great business metrics, better team. But we aren’t living in a perfect world, are we? So, you have got to play with the hand you are dealt with. So choose. Which side would you rather risk erring on?
- Great business metrics, shaky team
- Weak business metrics, amazing team
For my money, if they are the only two options I have, I might go with the amazing team. Why? Because even if they can’t improve the business metrics, they could always pivot to solve a bigger problem in their market or maybe even step outside their comfort zone. But, this isn’t about me. What would you choose?