Top team characteristics that make a startup a successful investment

When evaluating a company, venture capitalists tend to focus on the financial side of a business, their business model, addressable market size, growth plan, etc. However, evaluating a startup is an entirely different process. Venture capitalists tend to use gut feel and intuition to evaluate a startup. Venture capitalists know that while the founder(s) of a startup is crucial, its success lies on the shoulders of the entire team. Just like the old saying, “A chain is only as strong as its weakest link.” According to Harvard Business Review, 60% of new businesses fail due to problems within their team.

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During a study on 95 startup teams in the Netherlands, the eight most important criteria for startup teams were identified and ranked due to importance:
1. Prior startup experience
2. Industry-specific experience
3. Number of founders
4. Customer metrics
5. Helpful mentors
6. Working hours
7. Managerial experience
8. Level of education

1. Prior startup experience

The most important factor in evaluating a startup team is prior experience, especially failure experience. According to nine experts from different backgrounds such as VC, business incubation and development, and entrepreneurs in this study, founders with failed startup experiences have “seen the pitfalls of entrepreneurship.” They would most likely have learned from their previous experiences and try to aim for definite success. However, it was revealed that those with too many failed attempts in their resume are probably destined to fail in their next endeavors.

2. Industry-specific experience

Experienced team members can easily win over investors. Previous experience, especially in a related field, can help team members understand tasks better and help them achieve the company’s goals quicker. Though studies have shown that the most desirable performance level was seen in those with four to eight years of experience, as shown in the axis below.

3. Number of founders

The Optimal Number of founders could help a company thrive. Communication among team members is of utmost importance, and investors would for team players who could communicate efficiently to achieve the team goals. Founders are the pillars of a startup; therefore, there should be a balance between their hard and soft skills and their compatibility. If the founders disagree, the investors could detect this during the pitch or the Q&A and decide not to invest in the company as it might be set for failure in the near future.

4. Customer metrics

The goal for every business is to attract more customers because they are the source of growth and income. Startups usually start with a brilliant new idea that is designed to attract investors and customers, although when a startup is past the investment part, some entrepreneurs stop following their perfectly designed business plan. Investors are usually reluctant to invest money if the entrepreneur is unable to attract more customers. Knowledge of the customers will allow a business to thrive and become successful.

5. Helpful mentors

As Richard Branson, English author and businessman, says: “No matter how incredibly smart you think you are, or how brilliant, disruptive or plain off-the-wall your new concept might be, every startup team needs at least one good mentor. Someone, somewhere, has already been through what you are convinced nobody else has ever confronted!” Finding the most suitable mentor(s) for a startup is significant. Investors are attracted to businesses with successful, experienced mentors because mentors could play a vital role in a startup’s success.

6. Working hours

Startup environments tend to change rapidly as they grow and expand their business. Startups need employees who are willing to take risks and work long hours to succeed. Investors prefer to invest in companies that have dedicated, serious employees because there is a greater chance that they won’t get discouraged while facing challenges.

7. Managerial experience

A great manager can always control the situation no matter the obstacle. While facing many challenges, founders need to be able to communicate properly with team members, customers, and even investors. Investors are more likely to invest in startups with experienced entrepreneurs in the field of management because they can keep their team focused on the task at hand and achieve great results.

8. Level of education

“Entrepreneurship is a trial and error process and is not necessarily learned in school.” Study shows that investors are more likely to trust entrepreneurs with bachelor’s or master’s degree because they are most likely more motivated to prove their abilities. The ideal team for a startup consists of members with both hard skills (the knowledge and experience received from education) and soft skills (personal traits such as teamwork, problem-solving, leadership, communication, integrity, passion, vision, and time management.) If members of a startup team are too smart and experienced, they might not be willing to share their knowledge with the team, and if they are too passionate about their job, they might not be able to communicate enough for the sake of teamwork.

 

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image by jasonrwaller

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