What VCs like (part 2): amazing teams
I recently tried to explain what VCs mean when they say that they look for large opportunities. What VCs also say often is that they look to identify and back amazing teams. The theory goes that the more amazing the founding team, the higher the likelihood that it can execute well on what often is not much more than an idea, that it can react to changes and pivot quickly, if needed and that it can actually build a large organisation.
In this post, I will try to shed light on what I think makes an amazing VC-backable team. I am well aware that this is totally subjective, reflects the current state of my continually evolving thinking on this topic and is subject to tons of exceptions. Furthermore, the perceived ideal qualities of a team may differ substantially depending on what the company is actually doing and the stage of its development.
In general, I think that the amazingness of a team can be looked at on two major levels. Amazingness that can be directly observed during interaction (like funding process) and track-record.
Observable amazingness. Things that a VC can figure out from meetings with the team during fundraising discussions.
1) There is a founding team. A team means more than one person. A team will typically have a leader.
2) The team is complementary in backgrounds, characters, task division and covers the key areas of the venture. A great example of a powerful complementary combination is a founding team with both a great tech and a great business person on board.
3) The team shows positive dynamics and some history of working together. Founder break-ups are one of the top causes of startup failure, so VCs will look at this one closely.
4) The team has already done some work at the startup. Look at the results.
5) Animalness. How passionate, quick, committed and willing to go the extra mile are the founders? Christoph described 'the animal test' in a blog post.
6) Passion for and strong commitment to the domain area of the startup.
7) Ability to sell. Not everyone, but ideally the CEO, should be able to sell. Sell your ideas to investors, vision to the employees of the company, products to customers. Good salesmanship is very important in the startup world.
8) Ability to recruit great people and strong focus on building a great team. If recruits were made already - what is their quality?
9) Business acumen. People with strong ability to apply logic to solving commercial problems are always hugely beneficial to any startup setup. This ability is frequently reflected in being numbers driven and analytical while making important decisions and allocating resources (both time and money).
Amazingness in the track-record of team members. These can be found at previous jobs and roles they had as well as by talking to people who worked with the team before.
1) Ideally, (some of) the team members have first entrepreneurial experiences behind them. They started a company (not necessarily in tech), bankrupted a company, sold a company, worked at a startup, etc. The key is that the key members of the team know what they are going into and they have done or at least witnessed (some of it) before. Previous failures are OK, especially if handled with integrity and if resulted in valuable learnings.
2) Strong relevant domain experience. Have they done things before that are directly relevant / give an advantage?
3) Excellence. Did the team members show in the past that they can do something in an excellent way. These things may be totally unrelated to the startup, but can show what results a person can achieve, if they are passionate about something.
4) References. This one is about asking others questions about the points described in the ‘observable amazingness’ part. Good VCs will check references (both those the founders gave them as well as others) in a similar way to what a company would do while hiring an executive.
5) Last, but certainly not least - integrity. This point actually belongs in both categories and it is a classic ‘necessary, but not sufficient’ condition. While not every honest person will make a great entrepreneur, lack of integrity or dishonesty, both demonstrated during VC discussions or in one’s track-record are always a BIG warning sign to VCs.
Obviously, very few, if any, founding teams will check off all the points from the above list, but in general, the more of these points a team is able cover well, the more likely will a VC like it. At the same time, VCs tend to understand that entrepreneurial teams can have the most surprising ‘features’ and it is impossible to have a perfect pattern.
At Point Nine, we will typically weigh the observable amazingness higher than the track-record and experience. As someone once said: “Lack of experience is a temporary state, lack of intelligence is not”.
I am sure one can think of further points that could be added to the above, or group them differently, so please let me know in the comments below, if you have ideas on this and would like to share them.