How To Assess Startups: Part 2, The Startup Team
Did you know that 60% of new ventures fail because of team dynamics? It’s a big number, but shouldn’t be shocking to anyone familiar with startup life. At the start of a business launch, startup founders are intensely working on several stressful things at once, like developing their product, fundraising, gaining customers and traction, and more. Team dynamics are tested thoroughly during a high-stress period. Angel investors know to include “the team” as part of their due diligence process, but it can be hard to remove gut feelings and passing intuition to make an unbiased evaluation. Below, we dive deep into what to look for in a startup team so you can build deep knowledge of the team and the business.
What is the history of the founding team?
Founding a company is a long-haul endeavor and the founding team needs to have a significant level of trust and a strong working relationship. The best way to assess this is to ask how long they’ve known each other and what the nature of their relationship is. While it may be exciting to work with friends, that relationship doesn’t always translate well into work, so diving deep to find out if they’ve worked on other projects together is important. A strong working relationship means you can weather the ups and downs of startup life and ask each other the hard questions that will inevitably come up.
Is the team aligned in its vision for the product, the business, and the market fit?
Investors should take the time to get to know each person on the founding team to understand whether the team is aligned in how they are approaching and understand the vision and opportunity for the business. Investors can learn this from conducting one-on-one meetings with co-founders, reviewing the product roadmap, and by simply asking where there might be differences in opinion on how the business is evolving.
Does the startup founding team have the experience and/or the skillset for what they’re trying to create?
Most investors are looking for founders to have formal experience in a specific industry that matches the industry of the startup business. However, experience in a specific industry doesn’t always connect to business success - a true market disruptor’s vision exceeds their experience of the status quo. Instead, it’s helpful for investors to ensure that the startup team is well-versed in the industry their product or business functions in - do they know their customers, their competitors, and their opportunity? Do they have skills that match the vision for the business’ growth? For example, a business model that is dependent on customer acquisition ideally should have a founder with a skillset in sales or marketing.
Does the founding team cover its most important bases?
A founding team should make sure it collectively has the skills to cover the core competencies of the business. This will set the stage for the early days of building a team and process. For example, a technology startup should ideally have someone on board, usually a CTO, who is running the technical aspects of the product development. That person should have the knowledge of how to build the product the startup is pitching for investment so the team doesn’t have to solely rely on outside contractors, saving the team time and money as they are launching their product. A medtech startup should probably have a doctor on the founding team. A consumer product company should have people who have developed and manufactured products. Of course, people on the team can learn these skills or bring on investors or advisors to cover them until they have someone in place. In this case, all founding team members should have at least a collective understanding of what areas of the business need to be covered and their timeline to get there.
Will they go the distance?
It’s hard to know if a team has the grit necessary to build a scalable business to an exit, but there are some things you can look for. First, what is their past track record? Have they built a successful business or initiative before? Past success or even failure in a business can teach founders a lot. Another innovative way to assess grit is to dive deep into what they’ve had to overcome, called distance traveling, as used by Kapor Capital. Are the founders Ivy League legacy students who used family connections to get a job at Google, or are they first-generation college students of immigrants who got scholarships to state schools and have always had jobs since high school? What trials and tribulations have they gone through previously that will give some indication of future grit?
At Fundr, we assess all these factors and more when it comes to the startup team. Using AI, the Fundr platform was created to evaluate startups on 90 pieces of data to generate a startup’s Fundr Score™. We are working to help investors gain deep knowledge about a startup before investing - including deep knowledge of the startup team. The Fundr algorithm evaluates startup founders’ experience, knowledge, and business acumen, combining these details with product details to give any investor a full understanding of a startup’s viability and potential success.
This article is part of a series on how to evaluate startups for seed investment. Check out the first installment here and stay tuned for part three, coming soon.