For early-stage startups, assessing the founding team is one part of the due diligence process. While the product and market are important, the founding team’s composition and capabilities to scale, pivot, and even fail can provide investors with additional insight. In this blog, learn more about how to evaluate a founding team and assessing and evaluating startup founders and their capabilities.
How to Evaluate a Founding Team
Foundational Qualities and Track Record
One of the starting spots for assessing a startups’ team are the founders’ backgrounds. Investors can evaluate the founders’ professional histories for relevant industry experience, complementary skill sets, and past achievements to help provide insight into how well the founders are equipped to lead the startup. The focus can be on how well previous experiences could apply to the current startup.
If a founder has built a startup previously, this can also provide good insight into their capabilities. Did they scale a previous startup to the point of an exit? They may have experience with growing a startup into something bigger. Did their last startup fail? They may have invaluable lessons learned on mistakes and pivoting. In fact, a Harvard Business School study found that the success rate of first-time founders was 18% while second-time founders had a 30% success rate in their next venture.
Team Dynamics and Composition
Startups are rarely built and ran by one person. The dynamics between co-founders and early team members can also provide insight into the startup. A team that balances technical, operational, and commercial expertise may be better equipped to handle the various challenges of building a company. Additionally, the ability to attract and retain skilled employees is an indicator of a strong leadership team. Recruiting talent with a compelling vision, and keeping employees bought into the vision can be the sign of a good leader.
Execution and Operational Capabilities
A founder’s vision depends on the team’s ability to execute. Investors should evaluate how the team plans to achieve its milestones. The concept of founder-market fit, or why a particular founder is suited to solve this specific problem, is one investors should consider. This can be based on deep domain knowledge, technical expertise, specific connections, or unique insight into the market.
A founder’s ability to pivot is also important. Startups often need to adjust their strategy based on market feedback or unexpected challenges. A team that is unable to pivot may struggle when challenges arise.
Finding Sources of Information
So where can investors find sources of information about founders, their experiences, and technical capabilities?
Investment Summaries
Investors typically get a fund summary or a brief description of the company, its products, competitors, team, and investment opportunity and terms. This may also come in the form of a pitch deck. Typically for the startup’s team, there will be short biographies on the founders and key team members, outlining their achievements and previous experiences. This can serve as a good starting spot in seeing what roles the team has held before at various companies.
News and Press
Once an investor is aware of the founding team and the titles they hold, if the startup has a second-time founder, there may be news articles or press pieces that investors can find. Founder interview or podcasts can also provide additional information about the founder’s experience, achievements, and capabilities.
Final Thoughts
Evaluating a founding team goes beyond just reviewing resumes. It involves analyzing the founders’ relevant experience, the balance and dynamics of the team, operational competence, and their capacity to learn and adapt. By thoroughly assessing how well a team may be able to lead a startup, based on previous experience, investors can use the information to help conduct due diligence and make informed investment decisions.
Are you ready to invest in startups? Sign up for a MicroVentures account to start investing!
Want to learn more about investing in startups? Check out the following MicroVentures blogs to learn more:
- Assessing a Startup’s Defensibility
- The AI Talent War: AI Acquisitions
- Assessing Overemphasized Startup Metrics
- Secondaries and Tenders: Private Market Liquidity
*****
The information presented here is for general informational purposes only and is not intended to be, nor should it be construed or used as, comprehensive offering documentation for any security, investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest, directly or indirectly, in any company. Investing in both early-stage and later-stage companies carries a high degree of risk. A loss of an investor’s entire investment is possible, and no profit may be realized. Investors should be aware that these types of investments are illiquid and should anticipate holding until an exit occurs.
