There’s little debate among investors about the importance of the team to a startup’s success – it’s Team first, Idea second. Every time. Many investors will even fund top-notch teams regardless of the product or service they’re working on, especially at an earlier stage.
So what makes your team great in the eyes of investors? Although it depends on the type of company you’re building and varies between investors, there are key parameters that investors will look at.
- Team size. Two or three founders is ideal from a management perspective, as decisions can be made quickly. With just two, there’s the dangerous potential for even splits on crucial decisions. Three, however, could lead to a two-against-one dynamic – but it’s generally accepted as the best size to start with. This also means that when there is, one day, an exit event, the equity that remains in the hands of each founder isn’t too small.
- Skills and experience. Some individuals are more technical, some more business-focused – but the ideal team will have both. The exact mix depends somewhat on the startup’s focus, business model, and on the specific investor, too. Additionally, experience founding and running a startup in some managerial capacity is highly prized. If you have corporate experience in your company’s domain – great! You probably have deep insights about how the market in your space works.
- Entrepreneurial drive. Successful teams are motivated to simply get things done. In most cases, this is made up of the following ingredients: the willingness to try new things every single day, never giving up in the face of adversity, and the capacity to bend the rules.
- Sense of purpose. Much of a startup’s energy and drive can only be drawn from a sense of purpose. During the many low points each team will face, the ability to stay focused on the bigger picture – on how they want to change the world – is critical. This drive is especially evident when investors hear a team describe what they do. It’s hard to fake – and if a team doesn’t have it, they probably won’t survive the long road. That said, ‘to be a billionaire’ is one such purpose, but will get a mixed reaction from investors, no matter what your startup does.
- Integrity. When an investor is buying equity and becoming a partner in a company, the team has to be trustworthy. Without trust, things get harder and less pleasant. There are many ways to build trust with investors, but it’s also very easy to destroy the good faith with one fell swoop by going back on your word, lying about accomplishments, or bad mouthing your investor behind their back. Lastly, the respect and dignity with which team members treat each other is super important to us.
- Diversity. Not all investors agree this is a must have in a successful team. At APX, however, we believe in equality. A team that isn’t representative of over half of the world’s population may not be as well equipped to understand the world around it. Whether it’s diversity of gender, nationality, or other under-represented groups, this can add depth and new perspectives to a team’s understanding of the problem they’re trying to solve.
- Team dynamic. 1+1= 2, right? The team should be better together than the sum of its parts, not worse! Ideally, its members will have worked together or at least known each other for a long time. Job interviewers are known to employ the ‘airport test’ to potential new hires: How would you feel about being stuck in an airport with this person for 12 hours? And this is also true for co-founders: they’ll be stuck together in even worse situations, for much longer, under much more stress. Not all relationships weather these tough conditions – and team dynamics are a top reason for startup failure.
- Equity split. How have the founders decided to split the equity among themselves? This tells you a lot about the dynamics within a team. While we agree that the split is up to the founders, we want to get a sense that everyone is happy with their share of the pie.
To summarise…what is the ideal team? In a classic situation, it’s a diverse group of three that have exited a company in the same domain and have both tech and business experience. Straight-shooting go-getters, zealots of problem-solving, and evangelists of their solution.
No one ever finds teams like these, though. Ever. Just like everything in the entrepreneurial game, the key is not to let great be the enemy of good. Scoring highly in a number of the above parameters should be enough to blow investors away.