The Crucial Importance of a Strong Team when Investor Shopping

 

 

One of the most critical elements of being funded is the team who leads the charge. Know your weaknesses and have a plan to fill those gaps! Be honest in your approach and realistic in how your company will grow.

 

Any investor will tell you first thing they want to know after hearing a great idea is who’s building it? Who’s behind it, who are driving the process? This is because execution risk plays a huge part in making an investment decision. From one investor’s standpoint, Peter Polydor of Ergo Capital,  they look for three particular things when it comes to your team:

 

  1. Domain expertise. If you’re building a tech platform for banks, who on your team has worked at a bank? On the other side, if you’re building a tech platform, who’s worked in tech? Whatever you’re building, you need to have individuals who have both expertise in those industries and the skillsets needed to build what you’re promising. This seems very obvious, but a lot of times you’ll have companies weak in those areas, and they don’t even realize it. A great idea or pitch doesn’t equate to hands-on experience. A startup needs to know the entry points, roadblocks, regulatory issues, etc. of the industry in which they’re working, and this knowledge only comes from hands-on experience.

     

  2. Past startup experience. It’s not whether you’ve built out your product at Google, but that you built a company starting with five to ten people and grew it to 200 employees. This shows you have the experience and desire to be able to adapt and stick with things when the going gets tough. It’s one thing to create in the protected shade of a large company -- startups are a whole different ballgame. When you make your first hire, you’re suddenly dealing with a whole collection of new legal issues and a group of people who depend on you for income. When you hire new people, you promise them that they’ll be stable here. Hands-on experience is crucial, and a track record of startup success plays in your favor when pitching to VCs.

     

  3. Finally, how long have you known each other? What is the story of how the founders met, what brought about the genesis of your idea? Founders are essentially married partners in the family that is a new company, and when the going gets tough, divorce is an especially sticky situation. Investors want to know what kind of chemistry founders have, and whether they’ve worked together and overcome adversity before. How people respond when mistakes are made, and those with a certain chemistry and resilience in the face of trouble are much safer teams in which to invest. You can’t have simply met by swiping right and matching on an app.

 

As far as teams go, any company looking for investment won’t have everyone they need onboard when they seek out funding. VCs, therefore, put a lot of onus on entrepreneurs to identify where they’re weak and where they’re strong. Not only that, which gaps are mission-critical and need to be filled as soon as possible? When you present this insight, VCs recognize a level of self-awareness and a willingness to grow. If you’ve identified people for the role, that’s a great sign. Also, a good idea of how much you need to budget on those new hires and a clear idea of what those roles are only adds to how prepared and capable you appear. Tying your hiring goals to specific development milestones is crucial.

 

Once an investor is on board, you enjoy access to a knowledgeable second opinion. This is crucial, as you always want more info versus less when making a decision that’s going to impact your company. With hires especially, the risk of bringing on the wrong person can be devastating to your young company. Every one bad hire affects at least two other employees: in a ten-person organization, one sour apple results in 30% loss of productivity. As such, a lot of companies VCs work with coming to them asking for recommendations, especially when hiring a specialized role.

 

There are two types of VCs: one kind has billions of dollars under management and needs to provide a value for their high fees. These include recruiting teams, marketing teams, consultation meetings, and much more. The other type of VCs knows lots of people in the industries in which they invest and look for opportunities to help connect them. They insist on meeting potential new hires, especially C-level people, to give a second opinion. These VCs want to be advisors who align with your values and help you make good choices.

 

So when should you bring in third-party recruiter to help? After you have exhausted your personal resources. Typically, new companies best benefit from a recruiter when they’re filling out middle management or replacing an executive that isn’t meeting the standards. Kudos to founders who realize their limitations and step back from roles to help their company grow

 

Be honest with yourself: you know what is needed with your company. Above all, the aligning of company and team interests is crucial. To quote Peter,  “It’s crossing a river and fighting a curren to get to a tree on the other side. There are a lot of ways to get there, and as long as your whole team knows the goal, they’ll find a way that may be even better than yours. Listen to your team, and make sure you’ve created one who will work and thrive together.

 

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