25 Sep Startup Founders Worth Investing In: 10 Characteristics I Look For
An idea can change the world, but not without the right people who are able to bring that thought into action and then overcome all obstacles in their path. As Sam Altman puts it, “There’s at least a hundred times more people with great ideas than people that are willing to put in the effort to execute them well.”
Investors in startups need the ability to find those with a worthwhile idea, who are willing to put in enough effort (which, in a startup, is a tremendous amount) and can execute. The original idea could change dozens of times throughout the journey a startup goes through. The founder and their team, not the idea, will determine the success of a company.
As an investor in startups, I have to look at my business the same as a startup and focus on execution. And to properly execute as an investor, I have to be willing to put my trust and effort in the businesses I invest my time and money in. For each investor, their ideal investment is going to look different from another’s. For me, these are the 10 characteristics I look for in the founder of a company I’m considering as an investment:
The Ability to Lead
Startups fail; it’s a fact of life, and those without a strong leader are much more likely to fail. To invest in a business, I have to firmly believe that the CEO can not only turn an idea into a profitable one, but also hire and organize a company that can continue to grow. They don’t have to know how to do this on day one, but showing a willingness to learn and natural leader-like instincts is a great sign that they will be able to adapt.
One sign that an entrepreneur will be able to lead a company is the strength of their founding team. If an entrepreneur has already been able to convince several strong employees that they are worth following and working for, it speaks well for their ability to continue to do this in the future.
Investing in a startup means that I’m entering a relationship with the founding team. If our personalities clash, this will create another hurdle to overcome. I don’t have to become best friends with each member of a startup’s team, but we do need to at least be able to work together and have meaningful conversations. I also want to know that the founder(s) don’t have an ego that will get in the way of their growth and the business’s.
The past doesn’t always determine the future, but it can provide important information. If a founder shows inconsistency in their past, jumping from one idea to the next and never following through with one of their startups, why will this one be any different?
Every founding team needs at least one person who can execute; someone who can take thoughts, ideas, and an overall vision, and plan and take action on those steps to make it a reality. I can’t invest purely in a dreamer or someone who constantly has great ideas unless they can also show that they are able to take action on those ideas or have someone on their team who can. And if they have someone on their team who can execute, they need to be able to get out of their way and help empower them, not create roadblocks that stall the growth of the company.
What will your company look like in five years? If a founder can’t answer this question, they need to spend time developing a strong plan for future growth and have an understanding of what they want their app, product or service to become after it starts to gain traction. This vision should explain the what, why, and how of the future plan of the company. “Changing the world” and “making a positive difference,” are not concrete visions.
A startup with depth is one that has the potential to grow in several ways and is not one-dimensional. While it is important to have a niche, if a business relies solely on one type of revenue, like a website that can only make money from advertising, it lacks depth and is a risky investment.
Passion and Excitement
I love what I do for a living, and for an entrepreneur, there has to be something in their work that they love and will drive them through the long hours and stresses of entrepreneurship. I look for founders who are both passionate and excited about what they are doing. I also need to be interested and excited about their business as well. So even if someone approaches me with the next great invention for soil management in agriculture, it’s not something I’m interested in getting involved in. They need to find an investor who loves farming and understands the marketplace.
More Than Money
If money is the driving force for a founder, they will run the business much different than someone who is genuinely passionate about the business with a vision and plan in place for it to grow. The desire to build a business in order ot sell it or make as much money as possible and then leave will negatively impact the way it is built and the decisions a founder will make along the way. A founder needs to communicate why this business is important to them beyond the financial opportunity it may provide.
One of the first questions I ask when I hear an idea for a business is, “What unique value will the business provide its customers?” This simple question can separate what sounds like a good idea with one that has a chance to catch on with its target market. Every successful business provides something unique, and the founders need to know exactly what this is from the start of the company.
They Know What They Need
In addition to having a vision for your company, a founder needs to know what they need and want, both in the short and long-term. From what they need as a salary to what they want their position to look like in the next three to five years, the founder’s personal wants and needs will impact the company, as well as my interest in investing in it.
An unorganized business is an idea or a hobby, not a business. Unless every other characteristic is met (or close to it), an idea on its own is not something most investors will invest it. Although you don’t need to have a 50-page business plan, at least have a slide deck and information available to back up what you’re saying.
Every investor is different. Do your homework and ask questions before starting the process of working with an investor. Want help defining what your startup needs in terms of an investor and investment? Let’s talk. Email Michael@ConsultStraza.com.
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