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Ideas for Angel Investors #2 - Invest in People
Arguments for focusing on founder psychology ahead of product or market.
“The team” was the primary reason investors gave for the success of portfolio companies in a recent survey of 885 European VCs.1
Every angel and VC likes to say they back “great teams”. And yet, as someone who has pitched a lot of investors, I have met very few who focus on team during the investment process.
In first meetings, most investors (both angels and VCs, especially junior ones) jump straight into what the business does, how it works, market size and performance. Male investors seem to do this slightly more often than female investors.
You will get a sense of whether the person can present convincingly (sell). Very important. It may give you a feel for the market opportunity. Also important. But it won’t tell you who the founders are and how they’re going to perform under intense pressure in the next ten years.
People use lazy heuristics that they think tell them this sort of thing, like “they went to a good university and performed well” or “they rose through the ranks at credible company X”.
This doesn’t tell you anything.
On a first call with a founder, the things I try to figure out are:
Why are they building this specific business?
How do they think and behave in different situations?
How does the founding team’s relationship dynamic work?
What’s their background, including their upbringing? How has that shaped them?
What are their strengths? What are their weaknesses? What are their vices?
Are they honest about what they don’t know?
Are they open to feedback? Do they push back in an appropriate manner?
Do they show integrity? Do they have grit? Do they have resilience?
What fundamentally motivates them?
How strong is the founding team’s relationship? What evidence is there of this? Do they fight? How do they resolve arguments or disputes on decisions?
In short, I try to understand their psychology. I don’t always ask these questions directly, but I focus on getting a sense of them.
I am ultimately trying to figure out how they are likely to behave when things get tough. I have seen countless VC-backed teams that look excellent on paper, but if you scratch beneath the surface, you can see that the founders do not have the courage, passion, competence or maturity to build a great company. When push comes to shove, in Elon’s words, they won’t be willing to “stare into the abyss and eat glass”.
This is not the only reason startups fail. But it is certainly significant. And picking people with the right behavioural traits is the only thing that I really feel I can control.
Everything starts with people. A company is just a group of people. The culture, the market, the product and the execution are all downstream.
The business can change, especially early on. The people won’t.
Focal (formerly, The Stage), is back for its next online demo day on 18th May! Get your free ticket here.
Powered by 120+ leading VC funds, Focal is the hub for early-stage fundraising in Europe, accelerating the process and driving better results for founders and funders alike.
Watch up to 20 of the world’s hottest Pre-Seed to Series A startups pitch.
Focal is also partnering with Odin to give you the opportunity to invest in a handful of the very best companies from Demo Day, with a minimum investment of £1k.
Remember, capital is at risk!
Podcast - Building Science Companies w/ Devika Thapar
Devika is one of the cofounders of Wilbe, a science-focused education and investment firm. They work with leading scientists across the UK to create companies based on groundbreaking scientific research.
Why building hard science companies is not like building software companies;
What makes a great entrepreneur-scientist;
How Wilbe works - community, education and capital;
How spinning out works in Europe (or, rather, often doesn't!), and how Wilbe is changing this;
Living on the Isle of Wight and running a farm - commune living, community, belonging and the loneliness crisis.
We’ve worked with Devika to structure investments in some really exciting companies. If you’d be interested in joining Wilbe’s syndicate on Odin, you can add your details here!
Best of the Internet
Unfortunately I am having trouble embedding tweets - maybe because Elon has decided to go to war with Substack. Click the title to go to the tweet.
Click the link for the full thread.
My favourite here: “ignore your competitors - you will more likely die of suicide than murder.”
That’s it for this week - chat soon :-)
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