Investible Founding Teams - 50 folds - Alexander Jarvis
Transcript
- 1. Investible Founding Teams
- 2. Hi! I’m Alexander Jarvis
- 3. • twitter.com/ADJBlog • my.linkedin.com/in/alexanderdjarvis • angel.co/alexander-jarvis • www.facebook.com/50folds Connect with Alexander
- 4. Hands up who wants to fail?
- 5. Yup, failing sucks; so why start with an ‘un-investible’ team?
- 6. Investors always talk about the importance of the team?
- 7. But what is an investible team?
- 8. This deck is about 1. Who you need on the team, 2. The groundwork you need to have covered, and 3. How investors will judge if you are ‘investible’
- 9. So.. why do teams matter?
- 10. "Having the right team determines the path and outcome of a new venture more than any decision in the lifecycle of a company.” - Bernd Schoner, The Tech Entrepreneur’s Survival Guide
- 11. "I am fond of quoting that about 70% of my investment decision of an early-stage company is the team. My rationale is simple: everything goes wrong and only great teams can respond to competitors, markets, funding environments, staff departures, PR disasters and the like." - Mark Suster, Upfront Ventures
- 12. “70% of my investment decision of an early-stage company is the team” One more time….
- 13. In short: in the early days, the founders are the startup The team is what investors invest in…
- 14. So what kind of characters make a successful founding team?
- 15. Well, each founder needs to have specific skills and characteristics
- 16. But collectively, it is key the team of founders compliment each other (as far as possible)
- 17. Certain founders will play multiple roles and it is likely you might not cover every base… but try to
- 18. These are the characters (players) to make a startup successful
- 19. • The person to get the idea and startup off the ground powered by their “reality distortion field" • Convinces other founders to join and the first employee to quit their job • Challenge the team and asks for things that the others aren’t sure how to get done Visionary prima donna (1 of 2) Critical Prima donna
- 20. • This character is filled with passion and is often the ‘wild card’ of the team • Has a vision of the future and is able to communicate it to get others to become ‘missionaries’ to the cause (Not mercenaries) • The mission is a higher, aspirational purpose for the company to captivate ‘hearts and minds’, the imagination and ambition both in and outside the company Visionary prima donna (1 of 2) Critical Wild card
- 21. • The Leader is whom the team looks up to and are willing to follow to the end of the earth • Irrespective of democratic approaches to decision making, at the end of the day this guy makes the hard calls and has the final say • They have a big impact on culture and are typically whom staff go to for mentorship Leader Critical
- 22. “Mark has said he thinks we won because we wanted it more, and I really believe that. We just worked really hard. It’s not like we’re crazy smart, or we’ve all done these crazy things before. We just worked really really hard, and we executed fast. I strongly encourage you to do that.” - Alex Schultz, VP of Growth at Facebook On execution…
- 23. • Every team needs to ‘ship’ and get ‘ship done’- success is driven by who gets more done and faster • Executors see what needs to be done and makes it happen • No task is too menial, from buying laptops to getting an office • Day in day out the company makes small but measurable improvements • They do ‘more with less’ • They know it is better to be done than perfect • Ruthlessly focused on what will add to growth today Executor Critical
- 24. • Tech startups need the vision turned into product • The hacker ensures the tech stack is viable, bringing required tech together on the front, back and DevOps • Beyond tech chops, the hacker is able to attract great talent and knows how to manage them • They are key to create a defensible business model with a unique and sustainable advantage, identifying new ways to leverage tech and info • Tomasz Tunguz analysed 30 recent successful startups, finding 70% had one+ tech founder, with 40% composed exclusively of engineers Hacker Critical
- 25. • It doesn’t matter how brilliant your product is if customers don’t buy it and deals cross the line • A hustler with no shame, they know all the details of the product and can turn prospective users into paying customers • “I'm tryin' to make a dollar out of fifteen cents. It’s hard to be legit and still pay the rent” - 2Pac, Keep Ya Head Up Sales superstar (Rainmaker) Can hire/Founder at start
- 26. • The product owner lives and breathes what and how customers use the product • They have a deep understanding of what customers need and how that translates into priorities for functionality, user experience and design • Obsessive on users’ needs they ensure every contact point with a consumer is as intuitive, simple and clear as possible Product Owner Can hire/Founder at start
- 27. • Every business not only needs customers but to translate the product into something users want • Whilst the ’sales superstar’ gets up close and personal with prospective customers, the ‘marketer’ is critical in driving scalable growth across various channels • They know how to hustle up initial traction then how to scale things up Marketer Can hire/ founder needs to hustle till then
- 28. • The veteran has deep technical and customer insight and know how things are done and can be disrupted in the industry • Considered an ‘industry insider,’ they know the nuances of the competitive landscape and are critical in avoiding mistakes that will hamper product/market fit and initial traction • Key for models in FinTech and healthcare Veteran of Industry Can be advisor
- 29. • From fundraising, avoiding running out of runway, to having in depth comprehension of all the startup’s metrics, this guy keeps the startup alive and kicking • As the startup gets bigger, their importance gets ever larger The Numbers man Can be advisor
- 30. Key requirements for the founding team
- 31. Need a cap table? http://www.slideshare.net/AlexanderJarvis/template-cap-table- and-returns-analysis-guide Get the ultimate one here!
- 32. There are some critical things for founding teams to get straight before pitching for $$$
- 33. “So… who is the CEO?” - Every investor, ever
- 34. • I’ve been in pitches where I say “so, who is the CEO?” • Cofounders look at each other and blush • I say “You haven’t had that chat yet, have you?” • There has to be a boss that has the final say, and that has to happen before you raise money, and as soon as you start hiring staff • Staff need to know who makes decisions, and will lose respect for founders when they get conflicting ‘marching orders’ • PRO TIP: Being the CEO sucks, and you should be wary of people who really want it (if it is not immediately obvious, it typically is) Clear who the CEO is How to pass: Pick a CEO early
- 35. “…for the top twenty most valuable YC companies, all of them have at least two founders.” - Sam Altman, Y-Combinator
- 36. • The ideal size is 3, but 2 can work as well • One is generally too onerous for a VC investible business • Logically you need skill competence in tech, business and marketing to get initial traction • Skills can be outsourced initially, but not optimal • Critical characteristics of vision, leadership and execution can’t! • Jeff Bezos (Amazon CEO) coined the “two-pizza team”rule • If you can’t feed a team with two pizzas, it’s too large Founder team size How to pass: 2-3 founders
- 37. “In addition to relevant experiences, we want founders with complementary experiences because we know that different disciplines make a startup successful. We’ve seen startups with the best technology fail because they lacked marketing DNA or sales expertise in their founding team and ended up spending all their resources creating a technically elegant solution that their target market was not ready for.” - Evangelos Simoudis, Ph.D., Senior Managing Director at Trident Capital
- 38. • Teams need to compliment each others natural and learned skills • These skills come from personality and previous work and personal experiences • Simply put: • What’s the point of being a marketing genius with nothing to market? • What’s the point of being a tech god if you can’t get customers to pay for your product? • Founders need the key bases covered to get initial traction (where hopefully you have the $ to cover your weaknesses by hiring staff) • If you don't have complimentary skills, think about increasing founder team size Complimentary skill sets How to pass: Choose founders for strength, not lack of weakness
- 39. “Managers embrace process, seek stability and control, and instinctively try to resolve problems quickly—sometimes before they fully understand a problem’s significance. Leaders, in contrast, tolerate chaos and lack of structure and are willing to delay closure in order to understand the issues more fully.” - Managers and Leaders: Are They Different?, Abraham Zaleznik
- 40. • Need to have both a visionary big thinker and a pragmatic doer who can manage teams to make it happen • Whilst the leader inspires the team and creates chaos, the manager leverages the energy and focuses it into action in a structured manner • Ideally there is ‘constructive friction’ with each complimenting each other • Leader trying to achieve too much • Manager bringing them down to grounded realities Leaders and managers How to pass: The visionary needs to find a manager
- 41. “Founders should share a prehistory before they start a company together —otherwise they’re just rolling the dice.” - Peter Thiel
- 42. “In YC’s case, the number one cause of early death for startups is cofounder blowups.” - Sam Altman, Y-Combinator
- 43. • Founder blow ups are real. Believe it, I’ve seen it • Founders who find each other at an event and just start together is a risky proposition • “Outside pressure causes people to act differently. That was for me one of the most traumatic experiences in my early years. A fundamentally different environment changes people, and how they react.” - Bernd Schoner • Founders need a strong synergy to withstand the inevitable onslaught in transitioning from a napkin idea into a company • You don’t need to have exited a startup together, but you need to trust that in the trenches, the man on your left has your back so you work together well, and consistently History of working together How to pass: Work with people you trust
- 44. “What are they thinking about in the shower? If they’re working in an exciting place, they’re not thinking what they’re going to do over the weekend. They’re thinking: How do I solve that problem? It’s capturing their subconscious time” - Peter Diamandis, CEO of the XPrize Foundation
- 45. • One wants to change the world, the other wants to get stoned- not a foundation for the future, right? • Founders need to ensure they have: • a common goal for the exit, • the years they will commit to the startup and • agree they want to create a ‘VC’ investible business • You need to have similar work-ethic for the hours you will commit every day and are able to get to mutually-agreed decisions without the other feeling sore • Who wants to be coding till midnight when their cofounders are going home at 5? • That builds a lot of resentment • You all need to row in both the right direction and at the same consistent speed Shared goals and work-ethic How to pass: Have hard talks early about commitment
- 46. “It helps if the team has had a history of working together, but what is essential is mutual respect. And what is critical is trust. You need to be able to trust your co- founders to perform, to do what they say they will, and to have your back.” - Steve Blank
- 47. • Founders don’t micro- manage each other and trust the other to make decisions and compete tasks autonomously in the collective best interest • E.g. when fundraising, you agree one founder will do the raise whilst the other keeps the business running. • You periodically communicate and ‘check-in’ with each other, but you trust the other with competing tasks Trust How to pass: Pick cofounders smarter than you
- 48. “Knowing why people are committed to a common goal is important for two predominant reasons: first, there is a unity of vision underlying the startup; and second, when times get difficult—which they inevitably will—a higher purpose serves as motivation to continue. In other words, it suggests an appealing level of grit and hustle that will keep the company alive” - Bill Clark, MicroVentures
- 49. • Great companies can say ‘why’ they do what they do, rather than just what they are doing or how they are doing it (Simon Sinek) • Investible founding teams can articulate: • the bigger vision that drives them and • have a shared, long term vision of their direction • Startup isn’t for everyone, and investors easily weed out founders who are looking for a paycheck from those who would truly be an ideal fit to join on the ride to achieving the mission (and exit) Shared vision for the company How to pass: Solve a problem you actually care about
- 50. “Avoid overly rational short-term thinkers. There are bounds to rationality. Partner with someone who is irrationally ethical, or a rational believer that nice guys finish first” - Naval Ravikant, Angel List CEO
- 51. • Equity envy is real and insidious • Nothing breeds malcontent more than feeling they got a bum deal • Founders will spend more time thinking about how they are working harder than the other who has more equity then shipping code if they are not aligned • Investible teams have also planned for when things go wrong (which they do) • Founder drag-along • Vesting schedule • Vesting cliff • Board seats • Non-name-defined roles in docs Aligned on equity shares and prenups How to pass: Don’t be a dick, be fair, have the talk
- 52. Traits investors look for when meting founders (Good and bad flags)
- 53. Need a pitch deck? http://www.slideshare.net/AlexanderJarvis/template-seed- stage-investor-deck-for-startups Get the ultimate one here!
- 54. Team cohesion •The number one factor in any company failure is founder blow ups due to a lack of cohesion •Lack of awareness of respective strengths, weaknesses and place within the startup is a negative flag •Stonewalling, inflated egos, and irrationality are a sure pass •History of working together is critical to form this to be clear to investors How to pass: Get really drunk together a few times
- 55. Value of culture and team •Do founders effuse the strength of their culture and the quality of the broader team? •Have founders convinced someone to quit their job to join? •Honestly, American investors care more about this than in Asia, because Americans have bigger visions •You CAN NOT build a unicorn with shi**y culture How to pass: Actually build a culture to be proud of
- 56. Customer knowledge •Great startups know everything about the customer and proactively seek to keep understanding them •Being able to clearly articulate who their customer is, their problem and what they need is critical •Do the founders track NPS and is it high? •Investors can easily tell when founders don’t ‘get’ the customer, because they are unfocused How to pass: Apply ‘Customer Development Methodology’
- 57. Deep industry knowledge •How well do founders know their industry? •Do they know the nuances of the competitive landscape and how their product is better/different? •Do founders know why this is the right time? •Did the startup idea come from a technical insight from prior work experience? •Investors can tell if founders know their sh** because they learn from a founders pitch with their ‘encyclopedia’ of knowledge (And investors talk to a lot of people- them asking qus is a good thing) How to pass: Research like a machine first
- 58. Product focused •The best founders are completely obsessive about the details of the product •UI/X matters these days. A new launched site looks great already when founders are product focused •Investors will scrutinise the website before/during a pitch •Investors are pretty lazy, so if the landing page sucks, they think you do too… How to pass: Develop a product compulsive disorder
- 59. Listen •Remarkable founders are passionate, act quickly and bulletproof, but they listen: •Listen to advice from investors •Listen to customer feedback •Listen to differing viewpoints from team members •Action is critical, but listening informs the best and most successful actions •They listen and consider options but are readily able to say no, and pretty often! •They are always looking to learn and to challenge their deeply held assumptions •They are ‘filters not sponges’ •Investors talk and believe the great founders actually listened How to pass: Realise you learn more with your mouth shut
- 60. Constant progress •The best founders have made progress each time you interact •Every follow-up you see they have already executed on what was discussed •Continual, small advancements are what makes a great startup •Between investor meetings, it is apparent if progress has been made •Investors love to see progress, particularly if it exceeds expectations How to pass: Take notes, checklist, prioritise, complete & communicate
- 61. Focus •Successful founders know the value of focus •The best founders I have seen start small and then get big •They have a big ‘long-term vision’, but they focus on just that ‘one bit’ to make that ‘targeted customer’ really happy •They don’t start things and leave construction sites, they focus on executing, testing, iterating and moving on to the next challenge •Investors intuitively judge if founders can truly deliver on what they say they will do How to pass: Sell a dream, but you are focused on ‘just this bit’ right now
- 62. Constant learning •No one was born knowing everything •The best founders learn each and every day •In meetings they take notes. Irrespective of the seniority of whom is in the room, they are unafraid to ask ‘dumb’ questions •Exceptional founders know they can only be dumb once •Investors despise ego and ‘know it alls’. They love to share their views (Even if they are wrong, so just listen) How to pass: Read, ask more questions than normal
- 63. Friendly, positive and optimistic •Great founder are not 2-faced •They don’t pass on troubles to staff, but are still honest and fairly transparent •They know they are climbing a mountain and do it with a grin. They know their mood impacts other staff •Assholes rarely get ahead in life for long •If investors get an ‘ass-hole’ vibe they will run. Who wants to be stuck with a dic* for 7 years? How to pass: Smile more. The effect is infectious
- 64. Don’t lie •It’s hard to keep up with lies and you will eventually get caught out •Great founders don’t make fake projections which they know they can’t actually hit in their business plan, as when they look to raise the next round it might be a ‘down round’ •My favourite founders are upfront about issues they have (e.g. need a CMO)- that way the investor might be able to actually help •Investors love founders who can ‘sell the dream’, but they don’t give $ to liars How to pass: Sell, just don’t lie about what matters
- 65. Communicative •Founders know the importance of keeping a dialogue with their stakeholders, including investors •Some founders ignore investors as soon as ‘money is in the bank’ and then pick up the phone when they need to raise again… only they don’t •Word travels amongst investors (You have no idea), and no investor likes ‘call you maybe’ How to pass: Start with learning how to write investor update emails
- 66. Lean and mean •Teams need to be ‘relentlessly resourceful’ and to do ‘more with less' •Investors cringe when founders try to pay themselves big salaries (i.e. $10k at pre-seed round) •Investors love founders that have secured initial traction with no marketing spend and have achieved a remarkable amount with surprisingly little •This is the easiest trait to see in founders, as it is the outcome of the character traits How to pass: Hustle. Show what you did with nothing
- 67. Problem solving machines •Investors love teams able to solve the inevitable complex problems that that exist in every fledgling startup •But, they know a lean team readily lacks every skill and insight needed to overcome hurdles •Founders who proactively seek out answers and support from their extended network (including when pitching investors) demonstrate a capability to succeed •Ability to solve problems is sine qua non for a successful company How to pass: Stage a problem and describe how you solved it
- 68. Conclusion
- 69. Founder teams will define your startup’s ability to succeed
- 70. Investors will make investments based on them
- 71. Take more time than reasonable to build a great one
- 72. If you are A^3 50Folds can help you 50^