ARE YOU A GREAT FOUNDER?
There is an old adage in Angel investing that the investor should back the jockey, not the horse. While the product and business model certainly matter, the founder is the most important factor in the success of the company. As New York Angels has received thousands of applications and inquiries, many have asked us: what constitutes a good founder and what do Angels look for in a founder? Consequently, we decided to harness the collective wisdom of the group and asked our members about the most important attributes of great founders.
The degree consensus was significant, there were some surprises, and many really interesting nuggets of advice, for founders and investors alike.
PASSION
One of the most commonly cited traits was passion. As a founder, you need to be excited about what you are doing, and be able to communicate that, if you have any chance of convincing an investor to back you.
Carl Pergola wanted to see founders with
“Vision, passion, energy, resilience and a commitment to all stakeholders.”
Michael Hunter summarized his ideal founder as:
“Having energy, passion, and being organized”
Bill Pertusi saw passion as the necessary primary attribute :
“… passion for the business being built and proven experience with execution ideally in a growth business…”
VISION
However, while passion may be a critical ingredient, many Angels are looking for more, and vision was also a common thread.
Seth Masters categorized his ideal founder as someone who
“Knows the business, communicates the vision, listens to advice, and asks for help”.
And on the top of Dick Reisman’s list were:
“Vision and drive”
While Edith Simchi-Levi prized expertise very highly, wanting a founder with,
“Deep knowledge of the company’s industry”
And Mark Schneider wanted the founder to be able to:
“Switch from focus on the big picture and detail in the same thought”
RESILIENCE
Everyone knows that creating a successful start-up is hard. The statistics are massively against the founder, with a 90% failure rate (see here), but there are many who will continue to pursue their entrepreneurial dreams. To create a successful company, the founder will experience multiple setbacks, consequently, it is not surprising that “resilience” is a word that came up a number of times.
Mark Schneider looked for a founder to demonstrate:
“Tenacity, flexibility, ability to recognize mistakes and learn from them”
While Edith Simchi-Levi was looking for:
“Strong drive, resilience and coachability”
However, Craig Frischling recognized that while this trait was important, it is not easy to recognize:
“Resilience is the hardest to assess and, for me, probably the most important”
INTEGRITY
Another distinguishing factor about Angel investors, is that we are investing our own cash, not allocating from a fund, but from our own bank accounts. This makes the relationship with the founder a very personal one, even for a passive investor. Consequently, the idea that there may be some impropriety or a lack of openness is an immediate deal-killer for many of our members.
Barbara Moore summarized this by stating that the attribute she most valued in a founder was:
“Above all, integrity”
Bill Pertusi stated that:
“It is critical for me that the founder is open, honest, and direct in all his or her dealings”
Sachy Levy shares:
“Zero tolerance for integrity issues no matter how amazing you are in every other respect. Life is too short.”
And Dick Reisman wanted his founders to demonstrate:
“Integrity and trust”
ADDITIONAL ATTRIBUTES
While there were areas of consensus, there were also outliers, with many members sharing attributes that were particularly important to them. For example,
Jon Tiktinsky wanted to hear,
“a good ‘how I got here’ story”
Murat Koprulu was very focused on,
“Execution, and how it would drive monthly revenues”
While Michele Evans needed to hear how a founder intended to,
“Build a team culture”
And Jason Klein was interested to know the answer to the question,
“Did the founder make money for his early investors in his/her prior startup?”
MISTAKES
So, a founder may have demonstrated many of the attributes above, but that will still not guarantee their success. Our members were also asked about mistakes that they had seen founders make and how they used this experience to influence their future investment decisions. As revenue is the primary growth metric, it is probably not surprising that mistakes that impact customers and/or the top line are most egregious.
Jack Lasersohn has experience of founders,
“Not understanding their primary market or target customer well enough”
and Simon Hopkins echoes the customer focus:
“Founders becoming obsessed with internal issues when they should have been focused on their customers”
Simon Selitsky has seen founders,
“Getting to market with a half-baked product”
While Mark Schneider has witnessed inappropriate go to market strategies:
“Going wide and shallow rather than narrow and deep.”
OPERATIONAL ISSUES
Other Angels were more interested in operational issues.
Barbara Moore cites,
“Not tracking key metrics. …this allows the team to understand its objectives more clearly and be rewarded for meeting them.”
And Cindy Cook regrets investing in a founder who had created a
“great product” but, “…didn’t focus enough on getting to good unit economics and a path to profitability.”
But Seth Masters just wants all founders to make good decisions:
“I have seen many companies self-destruct or seriously damage their value due to having taken terrible advice.”
FINANCIAL ISSUES
Finally, funding is key to the success of a start-up, so many company failures can stem from financially related issues.
Phillip Thune has seen companies:
“Not raising enough money, or assuming that money will be readily available in the future.”
And this was echoed by Jack Lasersohn:
“Not raising enough money to get to next significant risk reducing milestone”
Craig Frischling noted a very specific mistake where a company was unable to raise subsequent rounds of funding:
“Not communicating or building trust with investors. Even though the company was at record revenue with high customer satisfaction and customer retention, when current investors were asked for a third check, they said "no".
While it may be a symptom as opposed to a cause, companies go out of business when they run out of funds.
Stephen Snyder has had experience of companies,
“Running out of money. With blinders fully on and in true denial”
The implication, of course, is that the founder should have better understood their finances and foreseen the end coming.
There is no guarantee that any early-stage company will succeed, and all investors would agree that there is a significant amount of luck involved in any success. However, as an investor, the experiences quoted in this article may help in evaluating founders, hopefully resulting in fewer poor investments. Similarly, as a founder, when it comes to raising money, understanding your investors thoughts and motivations should make the fundraising process a little easier.
