The team continues to be the single most important criteria, when I assess whether it would be interesting for SEED Capital to invest in a startup.
A good team is especially important for an early investor like SEED Capital. The idea, the business model and even the technology is not interesting to look at if the team is not able to execute. For startups, the road from 0 to success is never a straight line. It is often a relatively chaotic process and it is paramount that the team can adapt the idea to the market, conquer seemingly impossible challenges, attract talented employees and encourage eat other when the going gets tough. This, despite being broke and working from a basement.
"Even though we invest in early and very small startups, we rarely invest in pure “concepts”. Being able to turn sketches into prototypes and run a beta test with potential customers or even having developed a first version of an app is for us a good execution test"
Further, we always conduct a thorough due diligence on the team prior to investing. That way we find out, what competences the team has and what competences are missing. Subsequently, this also allows the founders to become aware of their strengths and weaknesses. This provides a solid point of departure for all involved parties. But what makes a good founder team? how many should be involved?
A study conducted by MIT Sloan School of Management indicates that the most optimal number of founders in successful startups is in fact three to four people. Others argue that two founders is a more optimal constellation. There should not be too many nor too few in a startup team. Jeff Bezos from Amazon once said that:” if you can’t feed your founder team with 2 pizza’s, then you are too many”. Smaller teams tend to stay more focused and productive because they can communicate more easily.
On the other hand, a team should not be too small. I sometimes run into researchers with a certain patent, who are looking for a team (and funding) to execute the idea, while the researchers with the majority share passively continue their research. Such pilotless planes will never become a success. It takes passion, competence and energy to create a successful company from scratch. You cannot just hire a project manager to run the business. It demands sacrifice, which you can only possess if you have a considerable ownership.
A one-man-band is not something we are particularly fond of either. There are no one to consolidate confidently with and you must pay for all the competences you do not possess yourself. This will give you less time to prove your worth before running out of money. Are you studying business, then you should look for a technically skilled co-founder and vice versa. The ability to find a strong founding partner is also, in our opinion, a good litmus test
It is important to cover the following roles in a founding team:
A product visionary who has market experience. This individual must be very passionate about the product and the company vision and thereby be able to sell the idea to investors and customers.
A tech rockstar, who can implement the vision and attract other technically skilled individuals.
The product visionary will often become the CEO because of his or her commercial skills. Sales, marketing and finance are all roles that can be added on later in the process. We often encounter fellow students, who are starting a business together, which can be somewhat challenging. Founders should not be too alike.
Also read the article by Ulla Brockenhuus-Schack: Why you shouldn't build your startup with people like yourself
It is hard enough to create a successful company without having conflicts as to the distribution of roles. Who should be the CEO? We always ask this question to teams of equal founders. A question that we expect a clear answer to before we consider investing. It is just like a ship – you need to know who’s the captain if catastrophe strikes.
Because as a startup you will always encounter catastrophes to some degree.
Oversat fra dansk. Original bragt på Finans.dk
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