We angel investors have a saying about choosing winners: “Invest in founders, not in startups.”
That’s because the founders are the only ones with the power to execute their unique vision. That makes them responsible for absolutely everything, from money management to product development to branding and more.
Think of a ridiculously indulgent, 3-Michelin-star restaurant, serving up a $30 salad.
The ingredients, even including one higher-priced ingredient like cheese or meat, come to a whopping $3 or $4 per serving. So what the heck makes it worth $30?
The answer, of course, is the chef, who takes ingredients anyone can buy and turns them into something amazing – an unforgettable experience, rather than just a meal.
So it is with good ideas, which are everywhere, and great founders – which are rare – with the ability to transform those ideas into a product that customers are willing and eager to pay for.
Of course, the business model needs to make sense too. No cooking staff can make something delicious from ingredients that just don’t go together.
But I digress. The point is, if the team isn’t right, the business won’t make it.
That’s why it’s critical that you be able to identify a star founder when you see one…
In fact, studies show that 23% of failed startups cite a bad team dynamic as their reason for collapse. It’s like building a house on a sinkhole – eventually, that sucker’s going to cave in.
You might be thinking that having just a single founder is a good way to avoid those problems. But, actually…
1) Only seriously consider startups with more than one cofounder.
The ideal number is two.
Two cofounders can get more done, using less capital, than one can. A single founder will inevitably need to hire out help.
But more importantly, a team of two or more shows me that the original founder isn’t just a crazy person with a big idea who couldn’t convince a single person to team up with him or her.
Having a partner is just part of the picture, though. The founding team also needs to “click” – personally and professionally.
There are certain vibes you can pick up on between founders when you’re doing your pitch meetings in person.
I can spot a bad connection right away – each one tries to upstage the other; their pitch deck doesn’t have a natural flow; or there’s a mismatch in the level of passion or commitment.
Those are easy “no’s” for me. Any fissure between founders on easy mode will turn into a chasm when things get hard – and they always do.
But for those who haven’t seen the hundreds of pitches it takes to spot these cues, or those who want to start investing through angel groups or online crowdfunding, there are some qualities you can look for that tend to apply to exceptional entrepreneurs.
2) Find a founder with a solid track record
It’s always a good sign when the founders of a business have a history of success building companies in the past.
Most startups won’t have much of a track record at the time they’re seeking angel investments…they are new, after all.
But their founders might.
I have way more confidence in an entrepreneur who has already steered a startup to an exit than I have in a first-timer. Launching a successful business is a tricky channel to navigate, but a founder who already knows the route is less likely to run aground (i.e., crash and burn) or sink (run out of cash and disappear).
How founders navigate this process is important, too. It can be hard to tell what goes on behind the scenes, but…
3) Look for founders who plan ahead and follow through
Agility is key when you’re building a business. Customers change, markets change, and therefore, plans must change sometimes. The question is whether the founders are prepared to roll with the punches.
Are they overly committed to a single version of their plan, or are they willing to adapt if part of their vision isn’t working? Are they effective decision-makers, or do they toil in deliberation much longer than they should?
Keep an eye on their process for getting things done. Quick and effective turnaround times for task lists and short-term goals is a good indicator of an efficient and agile system.
Also look for founders who have intellectual property. Going through the legwork to legally protect an idea is a good sign that the founder has thought ahead.
It also indicates that the founders are passionate enough to stand by their business in the long run, and…
4) Passion is probably the most important thing an entrepreneur needs to have.
Think about it – finding investors is the toughest thing a startup founder has had to do so far, but really, it’s just the tip of the iceberg.
Running the business is going to get a thousand times harder as it grows; there will be books to balance, staff to manage, IT roadblocks, competitors and copycats, good and bad publicity… I could go on.
A founder might go a year – or five – making no salary whatsoever, all while spending 60 to 80 hours a week working on their company.
That’s a grueling workweek, even for those who come out the other side with a generous paycheck.
Founders will take no vacations… will have no real breaks… will live and breathe their business for the first five to ten years, if not for the rest of their lives.
See, when you’re the founder, you are ultimately responsible for every problem, big or small. Think you can shut your phone off for a week-long getaway to Paris?
Think again! What if your staff clashes or quits? What if legal troubles arise? What if there’s a PR scandal that requires your attention?
It’s not just your name on the line – it’s a lot of your money, a lot of other folks’ money, your lifelong reputation as an entrepreneur, and your company’s future.
I see a lot of founders who don’t quite know what they’re getting into. They have a great idea, but they think of it as more of a side hustle.
Generally, those founders don’t have what it takes. It doesn’t matter how good the idea – blood, sweat, and tears build businesses.
In the beginning, the only difference between an idea and a business is the founders. So ask yourself this before you fall in love with just the idea: “Can I count on these people, in this business, in this market, to turn my investment into more money?”
Do your homework, vet every member of every project, and don’t settle for anything less than the qualities I’ve laid out here.
Until next time,