What do investors want to see in start up founders they invest millions in?
When a startup takes off, industry watchers note the company’s core offering, and many attribute its success solely to the founder(s) having a great idea. Investors rarely see it that way. For venture capitalists and angel financiers, a smart investment starts not only with a stellar concept but a smart, entrepreneurial team as well.
Here’s how discerning VCs recognize promising founders
Below are seven indicators which help venture capital funds choose promising start up founders:
1. They understand that being too early to market is as dangerous as being too late
This is one reason why an amazing idea is not enough. If the amazing idea is five or six years ahead of the target customer’s need for it or willingness to buy it, the startup will fail. I look for founders who have vision, but who can temper that with market understanding. Otherwise, they’ll get their funding and run out of money before anyone is ready to adopt their products.
2. They understand the customer’s problem and how to solve it
Years ago, when CDs had just displaced audiotapes, a friend and I went shopping for a stereo system. He decided to bring a scratched-up CD with him, and we went from stereo to stereo in the store putting in that CD to see which machine could play it the best. It turned out that a more expensive model did a better job, so we bought a higher-end stereo. The sales assistant watched the whole process and bought the scratched CD from us before we left because he was savvy enough to recognize that our purchasing method demonstrated a customer problem and provided the means to solve it. Sales assistants need that knowledge, and so do entrepreneurs.
3.They have trustworthy guts. If they want to get funding, entrepreneurs need deep knowledge in their markets, but they also need strong instincts. I want to see that a founder has gut feelings and the courage to trust those feelings. Intuition can’t replace understanding or experience, but it should be part of the package.
4. They can plan for tomorrow and five years down the road.
An emerging company has different needs than an established one, and startup founders have to be prepared to address both sets of challenges and opportunities. For example, an entrepreneur should be able to explain how his company will develop version 1.0 of a product that solves the customer’s problem and release it at just the right time in the market. But he also must be able to explain how that solution will scale down the road and how he will build a platform around it
5. They can balance conflicting capabilities.
By nature, most founders are rebellious. If they wanted to bow to authority, they’d be working for someone else instead of going through the struggles of entrepreneurship. However, a chief executive has to become an authority and build an organization that includes structure and, to some extent, hierarchy. These are things many entrepreneurs reject, yet they must be able to balance these traits in themselves in an effective way. Alternatively, some companies start with founding teams, in which one partner embodies the rebellion and the other embodies the structure. In these teams too, the traits must balance without excessive conflict
6. They need to choose advisers who are willing to put skin in the game.
There will always be consultants willing to weigh in on a company’s future. It’s more valuable, though, for entrepreneurs to have advisers who are close to the company and who can see their own potential success in the startup’s future.
7. They need to know what they want.
This is an important lesson for entrepreneurs, and one that I would hope to see in anyone seeking funding. We live our lives only once, and life is more enjoyable when we’re content, yet challenged. Thus, as founders develop their expertise, they need to understand what to do with their capabilities. Preferably, it should be something they really enjoy doing. That enjoyment is an essential element in most successful startups.
Entrepreneurs need game-changing ideas in order to stay alive in their markets. But great ideas are not enough. When it comes to attracting investors, founders need to demonstrate they offer all of the qualities required for long-term success
Shlomo Kramer is an angel investor in the information securities market. He is the founder and CEO of Imperva Inc. (NYSE: IMPV), which develops security solutions for databases and applications, and was previously a co-founder of Check Point Software Technologies Ltd. (Nasdaq: CHKP).
This article first appeared in "UPSTART Business Journal."
Published by Globes [online], Israel business news - www.globes-online.com - on April 8, 2013
© Copyright of Globes Publisher Itonut (1983) Ltd. 2013