When I’m considering investing in a startup, I typically spend between 50 and 80 hours doing my research first.
It’s a huge time commitment… but it’s also part of why my “hit rate” is upwards of 95%.
Not everyone has that kind of time to put into every decision, and that’s okay. As long as you cover the absolute essentials, you’ll probably do well.
We talk a lot about what those essentials are: a big market, strong financials, an advantage over the competition, and so on… But there’s one factor that ranks at the top of the list for me – and it’s not what you might expect.
Before investing in a company, I need to hear a founder’s story.
This is fundamental for all investors when they’re sourcing startups.
But what kind of information should you look for?
Personally, I want to hear exactly why a founder has started a company and what their exact goals are.
Did they become an entrepreneur for financial independence?
Did they decide to start a company to be their own boss?
Or do they simply have an intense passion for their product?
Picking a founder’s brain like this will help you understand his or her motives, and ultimately decide whether or not you want to invest.
Plus, this story is paramount for determining whether a founder should be looking to raise money from a venture capitalist or angel investor.
Here’s exactly what you need to look for when evaluating a founder’s story, and how to find the founders whose stories have set them up for success.
Let’s dive in…
Getting Rich vs. Being a “King”
I’m a big fan of famous lecturer and startup researcher Noam Wasserman.
He’s a two-time Amazon best-selling author, professor at Harvard Business School and USC, and the current dean of Sy Syms School of Business in New York City.
Wasserman wrote an amazing book called The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls that Can Sink a Startup.
In the book, he researched and analyzed over 200 startups between the 1990s and early 2000’s and found that most founders surrender control of their companies long before they go public. Here are the numbers…
50% of founders are no longer CEO after three years.
60% of founders are no longer CEO after four years.
And only 25% of founders lead their companies through their IPO.
This begs two important questions:
Why are these founders pursuing and starting a company? What are their goals?
Wasserman explains that all founders need to make tradeoffs and that there is a constant friction between getting rich and being a “king.”
It all centers on a phenomenon I always see when interviewing founders myself. In essence, there are two types of founders:
Some founders start their own business because they want to be in charge of their own company’s strategy and direction. They want no one telling them what to do, and they want to be their own boss. They want to be King.
Others don’t care as much about being “King,” but instead, they really just want to make as much money as possible. They want to be Rich.
When you’re speaking with founders, it’s important to know which type of person you’re dealing with. Do they want to be a King, or do they want to be Rich?
For example, my partner, Hans Thomas of 10X Capital is the paramount example of someone who cares little about credit and only about outcome.
Knowing this information will help you make an informed investment decision… and see whether or not a founder should actually take your money. If a founder wants to be a King, they may not be ready to relinquish control by bringing in outside investors. Founders who want to be Rich may see their companies grow more quickly if they bring in VCs.
Here’s Where You Come In…
I always want to make sure a founder knows what he or she is getting themselves into when bringing in a VC.
However, the best VCs are those who can keep the founder feeling like a “King,” despite the fact that he’s bringing outsiders into the company. In fact, we have a very important mantra at Growth Technology Partners and 10X Capital: First, do no harm.
This goes for angel investors, too.
Way too many people – VCs and angels alike – do way more harm after they write the check than good by trying to take control of the company.
That’s why it’s so important to get a founder’s complete story before investing.
You need to make sure your value-add as an investor lines up with what a founder needs from you, whether they’re a King founder or a Rich founder.
After all, they’re the ones putting countless hours of their time into getting their company off the ground.
Now, when I spot a company with an amazing story and mission, I jump in right away. That’s why I’ve got my eye on one particular company in the fintech space that’s blown me away.
This company essentially pays people to get out of debt… and it’s the only company in existence with that kind of business, as far as I know.
And in my opinion, unicorn status isn’t a long shot for these guys…
This company was founded in just March 2020, but they’ve already seen exponential growth in that amount of time. Not only that, they’re a part of an industry that’s worth trillions of dollars.
But this company’s raise is only open for another five days, so you’ll need to learn all you can right now before the doors close for good on this deal recommendation.
Neil Patel is a successful entrepreneur and investor who has been active in the startup scene for nearly two decades. Born in London, England, he moved with his family to Orange County, California when he was two years old, where he was surrounded by entrepreneurs and innovators from an early age. Neil is the founder of several companies, including Crazy Egg, Hello Bar, and Quicksprout – companies that established Neil as one of the world’s leading digital marketers. But Neil spends more time these days on the other side of the table – as an angel investor. He has made some unbelievable returns backing early-stage startups. Now, he’s here to teach you to do the same. Neil launched the Angels & Entrepreneurs Network to pull back the curtain on the world of “pre-IPO” investment, because he believes everyone should have access to the same playing field – not just society’s high and mighty.
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