What qualities make great founders?

As an early-stage startup investor, I ask myself this question all the time and so I have been on a quest to understand the essence of great founders and founding teams... The aim is to create a mental model for assessing founders when investing at the earliest stages.

The below reflections stem from countless meetings with venture capitalists and investors, which have helped me to gain a deeper understanding of how they look at founding teams. My aim with this article is to cement my learnings while solidifying a mental model for assessing founders when investing at the earliest stages.

I've bucketed what I consider to be some of the key considerations and attributes to look for in founders into five categories: commitment, leadership and culture, domain expertise, commercial mindset, and discipline.

 1/ Commitment

• Focus: This might seem to be a given, but it is crucial the founding team is committed full time to the venture they are building. No side hustles, no part-time work and no distractions. Quitting your highly paid corporate job is a tough decision to make but if you are not 100% focused on building your venture, do not expect me to fund your pet project.

• Trustworthiness: To build a decade long relationship you have to trust the founders. Trust they will act honestly and ethically. This is not something that can be tangibly measured but it is important to reference check founders’ backgrounds and statements they might have made. Being a judge of character is not an easy task but the more time you can spend with a founder, especially in an informal setting, the closer you might get to conviction.

2/ Domain Expertise

• Unique insights: I regard founders with unique professional experiences and insights into solving industry-specific problems, motivated by more than just the desire to make a quick buck. Therefore, given their unique knowledge, do they have the ability to think innovatively about both their industry and business model?

• Deep industry knowledge: How close are they to the problem they are trying to solve? Have they worked a decade in a broken industry? What level of depth of knowledge do they have about the industry they are building their venture in? I'm eager to understand their knowledge of the industry ecosystem in which they operate, including the competitive landscape and adjacent markets, and their perspective on the ecosystem as a whole.

• Startup experience: In some countries, founders with no startup experience are oftentimes disregarded until they have ‘failed’ on a few other ventures because building startups is extremely hard and certainly not like working a 9am to 5pm corporate job. Finding founders that have failed multiples times but continue to ‘go at it’ is a sign of strength and resilience. It also builds that muscle memory that helps them to repeat the process in a more efficient and effective way, marginally improving each time.

3/ Commercial Mindset

• Balanced approach: This concept highlights the founder's skill in striking a balance between their vision for product innovation and pragmatic, strategic planning to capture market share, generate revenue, and achieve sustainable growth. Innovation does not guarantee success, it also has to be coupled with a strong commercial sense to build a viable long-term business. Whether is via financial due diligence to get into the founder’s head to understand their thinking, or by assessing their previous professional experience and depth of thinking, it certainly is crucial a founder has the mindset to build a sound and sustainable business model.

• Capital allocation: It can be hard to assess a founder’s ability to allocating capital resourcefully when you are writing the first cheque. However, it remains important to assess their ability to allocate capital resourcefully during different times. Being myself a scrappy person, I love scrappy founders. How much will they pay themselves? We all need to live but what’s the right balance? Oftentimes understanding where a person comes from, and their background can provide some valuable insights into how they will operate. It is also important to dig deep into milestones setting to see how a founder thinks about allocating resources overtime. 

4/ Leadership and Culture

• Coachability: The statup journey is a long, draining and hard journey in which founders don’t have all the answers. I like to see founders that have an open mindset, happy to discuss ideas with investors and mentors while getting to conviction themselves. What I don’t like to see is a ‘yes’ person trying to please everyone and implementing every advice given. I like to see founders that can take advice, critically discuss it, and then make informed decisions about what they think is the best way forward. I like to give honest feedback to founders early on to see how they react to it, and weather we can build a healthy relationship.

• Founding team background: So many businesses fall apart because of personalities clash and other issues. If there are multiple founders, I want to understand their background, how they met or what projects they worked together on. It can help to reduce the chance of cultural issues in the future. Problems can arise all the time but if you worked with your team for a long time, you would generally know what to expect and how to handle conflicts. Also, are founders equal equity holders on the cap table? And if not, why is that?

• Technical skills: If you are building a tech company, you should probably have technical capabilities in house. I understand it can be quite expensive compared to setting up a fully remote and outsourced team, but it is important to have ‘high value & high importance’ tasks to be planned and executed in house while outsourcing some of the roadmap execution, coding and features rollout.

• Corporate culture: Culture can be very hard to assess at the earliest stages when there are less than a handful of people in a team. At the later stages, you can assess the company’s attrition (staff turnover) and dig deeply to understand the reasons. Early on, it will take time to identify previous stakeholders and perform reference checks, but it is important to do so.

5/ Discipline

• Operational Cadence: We often use monthly investor updates as a proxy for a founder’s ability to manage priorities while executing on a single, recurring task. Investors value regular communication to understand what is happening with the business and to offer their assistance. In insight, this is a lot easier to assess but for a first cheque when no investor updates were ever written is a bit trickier. You can assess how a founder communicates during the fundraising process and how responsive they are. I might be making a wrong conjecture here but given fundraising is the most important activity when you are running out of cash, shouldn’t you avoid leaving your potential investors hang? You might come across as disengaged and if you are unable to prioritise what is important, how will you execute on what matters next? If you can’t run an efficient capital raising process, how will you survive when your business starts to get pulled into every direction.

I’ve had numerous of discussions with investors regarding the most important factor to assess in early-stage ventures.... is it the founder, the market, the business model, or the product? Responses have been mixed and I will save this discussion for a future article. However, it is evident that having a strong founding team at the earliest stage is crucial. As the company grows, team dynamics change, and other factors become more important.

Ultimately, I prefer to invest in what may initially appear to be an average product developed by an exceptional team, rather than an average team working on an exceptional product. Execution is key, and supporting the right team is essential.