At innoWerft, we work a lot with very early-stage start-ups. In pitch decks, I almost always find at most a coy slide about the team, which is usually presented quite cautiously during the pitch. That's nice, but certainly wrong. Because: a first-class team turns a second-class idea into a great business, and a second-class team can't even get a first-class idea off the ground.
While I usually already have a lot of business to show in later financing phases, at the very beginning I mainly have an idea and a team that is hopefully operating in a sufficiently large market. Especially in the early financing rounds, the team plays a massive role in the investor decision. Do I trust the people? Do they have enough energy? Can they inspire?
Anyone who has ever looked at a typical participation agreement will find plenty of evidence for my assertion: the founders are bound in many ways: whoever leaves must give up shares ("Vesting"), the founders must work fully for the startup ("entrepreneurial concentration", "commitment"), severance payment restrictions ("good/bad leaver"), non-competition clauses, lock-up and many more.
Anecdotally, it should be mentioned that the opposite is true for large, listed companies. None other than Warren Buffet has reportedly said:
I try to invest in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.
I try to invest in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.Exercisers
Let's start with "turn-offs" - I'm taking a very personal view now.
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- Why should I invest in a startup where the founders simply know everything better? Such a team will hardly benefit from my expertise as an investor. Typical statements: "Above all, we need capital and a network of customers. We can do everything else ourselves".
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- Equally tiring are founders who don't really answer a question, but instead - based on the mediocre answer to the question - offer eternal verbal rambles through their world. People who can't get to the point verbally often can't get to the point mentally either. Especially in the beginning, founders have to make an enormous number of decisions in a very short time - usually the right ones, if possible.
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- The founders are already arguing with the investor during the introductory meeting. While it is important that different types make up a team that can also argue with each other, it is anything but productive if arguments break out at the investor meeting. The situation where founder A says something and founder B obviously doesn't think it's perfect and says something about it is wonderful. You can learn a lot about how to deal with each other in a team from the style in which this happens.
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- The team is not a team, but a "one-man show". We no longer invest in individual founders ourselves, but there are also teams that are so obviously dependent on one person that there is simply a cluster risk: if this one person is no longer willing or able, the startup is finished. Unfortunately, there are always founders who cannot build a team, but only a group of followers. This also usually leads to short-term collaboration.
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- There are people on the cap table who are not really involved. 99 out of 100 VCs will not accept such a situation. Shares in your startup are scarce, and you will realise this by the third financing round at the latest. Nevertheless, all founders who work with you (usually for manageable salaries) should be sufficiently economically motivated. This is not possible if "idea providers", "mentors" and others already own these valuable shares at the beginning. Such people are incentivised via VSOPs.
Team: diversity and expertise
There are more than enough studies, experiments and evidence that diverse teams perform better than homogeneous ones. Diversity here means personalities, problem-solving strategies, and certainly also gender and culture. I don't want to repeat that here.
It is also important to have the relevant competences required for business success. I often come across business models in which digital marketing is obviously a critical success factor, but this is to be bought in. This is just as hopeless as a business model in which a software platform is critical to success but there is no software person in the team - this is done abroad, e.g. the first will be ripped off by an agency, the others by a software service provider. But of course, knowledge of the industry is also hugely important for success.
In a team, you can also gather the strength to deal with setbacks. I don't know of a single startup that hasn't hit rock bottom several times to the point where they thought there was no point in continuing. A real team is always more resilient than any individual can be.
A start-up in particular also needs someone who can stand on stage and sell the start-up very well. Someone who can inspire people, beyond the mere factual arguments. After all, young startups in particular will not be able to avoid speaking in front of larger groups and finding resonance there in order to attract investors and customers.
And anyone who still claims that a single founder combines all of these various competences: it can happen, but it is unlikely.
Dispute
Statistically speaking, one of the most common reasons for the failure of an early-stage start-up is the break-up of the team - yes, even more often than a lack of funding. A frequent cause of the break-up is disputes within the team.
As an investor, you cannot see these in advance or even rule them out. However, since these issues are so often a problem, investors are very sensitive to any kind of positive or negative signs and look very closely and attentively at how the founders interact with each other. After all, the diversity mentioned above is of course also a reason for friction.
Many investors also have access to mediators - and the earlier a team makes use of this help, the less escalated the conflict, the greater the chance of mediation success.
Yet another spit that can be turned round
As a startup, you can also do this with your investor: take a close look at how people interact with each other, because it's no fun for a startup if the employees and partners of a VC don't get along. Quite apart from that: startups usually have a few investors on their team - and if things get difficult for the startup, arguments between investors can also cause a lot of problems.