A memo to venture capitalists looking to invest in pre-seed and seed stage startups
1. They’ve taken an ‘L’ in life — and bounced back from it.
“Taking an L,” is popular slang generally used to describe a major loss in some sort of competition. In this case, I’d like to expand the meaning of “taking an L” to include all cases in which a person’s hopes and expectations were not met in a largely considerable way. The way I see it, one can ‘take an L’ in their career, relationships, finances, and just about every other area of their lives.
Those who have ‘taken an L’ in their lives — and bounced back from it — are a different breed. Founders who come back from a major loss have a unique edge that greatly benefits their businesses. There are two prominent traits that all effective business leaders seem to cultivate after ‘taking an L’: humility and perseverance.
Humility grants a founder a heightened sense of empathy and compassion in their work. Founders who display noticeable humility indicate that they have had to walk through a major loss at some point. This major loss has humbled them, and they carry this humility into everything they do. This trait enables them to think creatively and critically about impactful, mission-driven, and potentially disruptive business ideas. They are wise in that they understand the difference between taking a calculated risk and being outright reckless. They recognize that the business is counting on them and they take extra care to consider all pieces of tough decisions.
Perseverance ensures that they won’t give up when the going gets rough. This kind of dedication only comes from someone who has bounced back from a major loss. Being the founder of a startup is no easy feat. High stress situations occur on the daily, and there are many days where it might feel like your emotions are at the mercy of the world’s craziest rollercoaster track. A successful startup requires strong leaders who are able to remain level-headed and composed in the face of challenges. Founders that persevere are truly committed to their company’s long-term success.
2. They are commitment minded.
Founders who are ready and willing to commit to a goal will do whatever is necessary to follow-through on that idea, deliverable, or vision. Whether the task at hand requires them to build the right team, promote the best people into leadership roles, or seek effective financing options, a commitment-minded founder will work to ensure the long-term success of their startup.
It might seem that commitment is an obvious trait for a startup founder to have; however, not all founders are commitment-minded. Some founders suffer from an inflated ego and are only committed to the idea and perceived status that accompanies being the leader of a company. Companies whose founders are less interested in the well-being of their business end up suffering greatly. While the founder is fixated on their social status and outside perception, this lack of true commitment manifests in all pockets of the business. In other words, a lack of commitment is a recipe for disaster!
As a venture capitalist (VC), it is important you are able to identify founders who are commitment-minded and goal-oriented. Your investments are on the line, and a flaky founder will take no issue with frittering your money away.
3. They have a balanced ego.
Being able to jump into calculated risks is required for successful business owners. To be comfortable with taking such risks, one has to be invested in some level of ego. However, I must caution against founders who have inflated egos.
Inflated egos are the silent killers of many startups. When founders get too big for their britches (that is, when they let their selfish desires take over), the company suffers in morale and culture. This type of adversity impacts the very foundation of a business and can cause stagnancy, complacency, and a high-turnover rate in employees.
Founders with healthy egos make space for constructive feedback, and are effective at making executive decisions that do not center around themselves. Those with overly inflated egos, on the other hand, are generally unproductive, overly competitive, attention seeking, and obsess over titles. Ensuring that a startup has a founder with a balanced ego could just mean the difference between a successful business and a failing company.
4. They are mission driven, not money driven.
It is usually a quick tell as to whether or not a founder is motivated by mission or money. A mission-driven founder has a vision for a cause that is greater than themselves. A money-driven founder, however, will often deviate on their mission and focus on what is bringing in the most cash.
The central focus of a founder directly impacts their level of commitment to the company (#2). A mission-driven founder, like Hamdi Ulukaya of Chobani, dedicates themselves to a purpose outside of themselves. In the case of Hamdi, he views his startup as an entity that will grow beyond his own tenure and is invested in the life of his company long-term. The level of commitment that a mission-driven founder (like Hamdi) has is evidenced by their commitment to building a strong foundation for a lasting empire.
On the other hand, a money-driven founder is not always committed to the company. They will usually stray away from the company’s overall vision, and choose to walk down a path towards profit.
From a VC standpoint, you cannot trust a money-driven founder to earn you a 10x return on your investment. This may sound counterintuitive but money-driven founders struggle to make decisions that benefit the whole; for example, they may struggle to reject an acquisition offer that helps their bottom line but does nothing positive for investors. In other words, a money-driven founder will always prioritize the path that leads to his personal financial gain over the long-term prospects of the company.
5. They know when to quit.
While no founder wants to admit that their company is failing, a strong leader knows when it is time to cut their losses and fold.
Elizabeth Holmes serves as a great example of a founder who didn’t know when to quit. She has since reaped the consequences of her decisions, and has shown us a valuable lesson in knowing when to walk away. Circumstances that cause a founder to push through a failing company will always differ across businesses; however, most cases usually involve a founder with an inflated ego, who perpetually denies hard truths, with a desperation to succeed by any means.
Founders who are commitment-minded (#2) should not be confused with those who are quit-phobic to the detriment of everyone around them. The latter is someone who puts their selfish desires first, while the former is someone who is unafraid to make necessary sacrifices to achieve a goal.
When a founder does not know when to quit, they disregard the long-term well-being for all involved. This can do an astronomical amount of damage (just look at Elizabeth Holmes), and can impact the reputation of the startup and the VCs who invested in them. It is important to do proper due diligence to spot these red flags before diving in; you will thank yourself later.
If you found this article interesting and want to know more about my thoughts on startups and venture capital, you can reach me at www.ayaspencer.com. Let’s chat!
5 qualities to look for in a successful startup founder was originally published in Noteworthy – The Journal Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.