For many investors the most important factor in their investment decision is the team.
Here’s why—and what are investors looking for in the team itself.
The first thing that matters to investors is whether you’ve done it before. If you’ve built a certain kind of product, or marketed successfully to a certain customer group, then you’ve proven you know how to do it, so it’s reasonable to assume you’ll be able to do it again in this business.
Experience is only useful to “prove” you can do it again. If you’re already selling your product, or have traction, then you’ve already proven you can do it by doing it.
When experience becomes a non-issue, what else matters in the team?
If you have invested for any length of time, you have seen businesses fail. As you invest more, you tend to see recurring failure patterns. Four of these are primarily team failures (six others are business failures).
Investors care about you team because they don’t want to see you fail in one of these common ways:
1. Will you stick with it, and not go get “a real job?”
It’s common to see entrepreneurs, especially first-time entrepreneurs or those that have a family to support, get discouraged in their business, especially if they’re not being paid a salary. This is why investors look at clues to gauge your commitment.
Are you working full time in the business? Have you invested your own money? Are you willing to work at survival wages? These are clues of your ultimate willingness to stick with the business when you have slow progress and/or get a better offer.
2. Will the team stay together and not break up?
I remember sitting in the middle of a pitch, and watching a VC’s whole body language change from open to closed when a cofounder interrupted and said something like, “Kamal doesn’t understand the industry and his strategy is wrong; mine is better.”
I believe with a fully cohesive team we could have solved our challenges in that business and landed that money. This story of founder splits dooming the business is repeated over and over. That’s why investors want to hear how you have met and if you have worked together in the past. They also want to meet the whole team to see the dynamic between you.
3. Do you get stuff done?
If you’ve ever worked in a large organization, be it private or public sector, you have probably noticed that there are people who get stuff done, and others who seem to coast and do very little. If you are someone who likes to coast along, don’t become an entrepreneur.
Investors will be looking very closely at you to see whether your company gets things done. They’ll also use how rigorously you follow up with them as a clue.
4. Are you liars, crooks and thieves?
Not everyone is honest in the world. As an investor, you will encounter more than your fair share of people who are being economical with the truth to get your money. This is why most investors will refuse to invest until after they do due diligence.
In brief, due diligence is a chance for them to verify if everything you have said is true. If they catch you in even one lie or exaggeration (either in diligence or before), they are going to wonder what else you have lied about. And they’ll probably figure they can’t trust you, and will run.
There is really no easy answer for how to present your team well to investors. Sure, there is obvious stuff like not arguing with each other in a meeting. And fundamentally, these factors are about who your team is, not how you present.
To get your team invested in, look yourselves in the mirror and do some soul searching. Are you ready to stick with it when things get tough? Is your team unified? Do you get stuff done, or would you be better off in an environment where you can hide out?
If something doesn’t feel right, address it. The investors are only putting their money at risk. You are also an investor in your business, and you are putting years of your working life at risk.