Advice for Would-Be Entrepreneurs: The 7 Questions You Need to Ask Yourself, Before You Look for Funding
As a venture investor, I am frequently asked what I look for in a portfolio company. The answer is simple—technology, product-market fit, and core team. But when you dig into it, only one of those really matters—the core team. See, you either have interesting technology, or you don’t. And finding product-market fit is usually a process. So that leaves just the core team—and it is indeed the key success factor for funding, and beyond. Here are the “green flags” I look for in startup founders:
1. Do you have personal chemistry?
The grueling hours and extraordinary pressures of startup life drives a lot of “founder divorces.” If you are a cofounder, I want to see that you really understand who you are in the trenches with. You could be childhood friends, university classmates, former colleagues, or even family members. But if you embraced challenges together before, and willingly choose to do it again, that’s encouraging. Even so, existing hierarchical relationships can get in the way of doing business if you are not careful. I therefore also look for clues of chemistry and respect: Do you joke around with each other? Do you speak well of each other? Do you give each other “air-time” to speak? If so, you may have the right stuff to stick together.
2. Is there founder-market fit?
After personal chemistry, the next most important thing is that founders are uniquely equipped to solve a particular problem. Building a successful startup is about detecting a market white space. To do that, you must possess genuine domain expertise in your area. This allows you to recognize the problems that matter. I want you to have an “unfair competitive advantage” in the market by way of your knowledge, experience, niche skills, and industry connections. A few very special people can wade into a completely new space and build a winning company, but it is a very rare occurrence indeed.
3. Do you think differently?
The best founders come to the table with some non-linear, non-obvious thinking about the market—a unique intuition about where things are headed, or a contrarian opinion that is probably right. The ability to imagine a world that does not exist today is one of the keys to creating category-defining solutions. It is also important that the founders have what I call a “passionate rage against the status quo.” You need that level of emotional energy and commitment to carry you through the challenges ahead. Being “bullheaded” about your vision is a sign of potential success.
4. Do you have laser focus?
A lot of smart founders initially try different strategies simultaneously, to preserve optionality. You might need to knock on a lot of doors for feedback before you find what works. But with limited time and money to move things forward, you can only afford to spend your passion and energy on one or two promising market use cases. Learning to say “no” to the wrong things is essential. A lot of entrepreneurs get distracted by peripheral revenue opportunities. But if you get $500,000 from five different customers, based on five completely different use cases, investors won’t see your path to scale, and you will have a hard time raising your next round.
5. Are you authentic?
Nobody likes a bullsh*tter. And VCs can smell inauthenticity from a mile away. Due to imposter syndrome, a lot of CEOs adopt a “fake it ‘till you make it” attitude. But pretending to be someone you are not, or to know something that you do not, will lose you investors’ trust. Your goal should be to express, not to impress. If you don’t know the answer to an investor’s question, simply say “I don't know, let me get back to you.” We understand that you are not going to have all of the answers, even as a repeat entrepreneur. Your ability to lead with vulnerability, honesty, and authenticity telegraphs your worthiness as a portfolio company. Now if you do happen to say the wrong thing, or make a mistake, be honest about it. As they say in the game of golf, “don’t follow a bad shot with a dumb shot.” Take the stroke and move forward.
6. Are you comfortable taking risks?
What do you call a risk-averse entrepreneur? “An employee.” As an entrepreneur, you must have a yearning for success that is stronger than your fear of failure. We are only investing our money, but you are risking your whole career. You can’t do that if you are terrified of failure. I have given money in the past to founders who refused to spend it. That is death by 1,000 cuts. Your job is to increase shareholder value—to grow the company, not just to survive. Now I’m not saying that you should carelessly throw money to the wind on foolish notions. What separates calculated risk from senseless ambiguity is measurability. Founders must be able to quantify risk, and then to make committed, high-quality decisions, with incomplete data.
7. Can you check your ego?
Great entrepreneurs have “split personalities”—you need abundant confidence to relentlessly evangelize your ideas, but you also need humility and open-mindedness, to continuously learn, and to improve your product. Why did your prospect say “no?” How can you improve your offering? Should you pivot? Are you comfortable looking inward to find out what’s wrong with your product, your team, or yourself? Surrounding yourself with people more gifted and capable than you are is a green flag. So is accepting responsibility for every failure, without losing faith, or taking it too personally.
There is a lot of glamor associated with groundbreaking new technologies and eye-popping funding rounds in the startup world. But it is always the entrepreneurs themselves who make the difference between winning and losing. My advice to would-be entrepreneurs is to take stock of your team and see how many of these green flags you truly possess, before you go looking for funding.
A version of this article originally appeared on Fast Company