Pitching Angels 9: Betting on the Jockey, Not the Horse
By: Dc Palter
Tags: Startup, Team, Pitching, Venture Capital, Angel Investors

It’s a truism among investors that we bet on the jockey, not the horse. We often say the three most important factors in startup success are the team, the team, and the team. While that’s an exaggeration, there’s no doubt that with early stage investments, investors examine the team through a microscope.

At this stage the product hasn’t advanced much beyond MVP and market traction is minimal. Your product is still an experiment that will inevitably need significant tweaks if not a complete pivot before it takes over the world. Consequently, your ability to understand customer needs and make changes on the fly is far more important than the details of the fantastic product you’re pitching to us now.

There are a million ways a startup can fail, and only a few ways to get it right, so previous success at a startup is the most important factor we consider, but it’s not the only thing. Here’s the list of what we’re looking for in a founding team. Not all of it goes in the deck, but all of it is part of how you pitch to investors.

Startup Success: Past performance may be a poor predictor of future success, but for an early stage startup, it’s all we’ve got to go on. Even experienced corporate executives aren’t prepared to run a startup where a team of just a few people has to do everything themselves, from building the product to finding customers to answering the support line and even making the coffee. It’s a frustrating job working in a cheap office for long hours without even drawing a salary. Younger founders rarely have the breadth or depth of experience needed to run an entire business alone. Being a founder is a unique job that requires its own kind of experience. The ideal team has done it before, building a startup from scratch to exit that provided a juicy return to investors. We’re looking for people who understand how to execute on a minimal budget, build a product, grow a team, fundraise, and find customers on their own while wearing dozen hats. The best way for us to guess if you can do all that is if you’ve done all that before.

Domain Expertise: It’s obvious that inventing a new drug or a better battery requires world-class expertise. What’s often missed is the same is usually true for most startups. Developing a new beer or a healthier cookie may not require a Ph.D. in chemistry, but getting to market efficiently does requires the equivalent of advanced degrees in retail channels and consumer marketing. The founding team not only needs to know how to build a product, but what product is needed and how to reach the market.

Sales: The temptation for most founders is to hire a head of sales as soon as possible and leave the hard work of selling to someone with a golden rolodex. Suffice it to say for today’s article that until the company is well off the ground, this never, ever works. The CEO must be prepared to spend most of the day talking to customers and be able to sell the product, even if your founding team is all technologists.

Product Development: Conversely, if your founding team is all business people, you’ll have to explain how you plan to build and refine the product. Contractors are okay to build an quick MVP and see if anyone is interested as an experiment, but if you have a technical product, you need a technical leader to build the real product, weighing the trade-offs of the product architecture and features, and meeting with customers to shape your product strategy.

Well-Rounded Team: The startup team needs to wear a dozen hats, from product development, sales, and marketing to finance, HR, and regulations. You don’t have money to hire all those roles and accountants and lawyers are only there to explain your options to you, not make your business decisions. A team that has all the bases covered is less likely to make avoidable mistakes.

Coachability: Humility and a desire to learn from us condescending investors who want to tell you how to run your business will go a long way towards making up for the gaps in your team. We’re investing in your business at an early stage because we believe in your mission and want to help. Take advantage of the experience of investors, advisors, and industry experts instead of trying to appear be expert at everything. Share with us not just your successes but your setbacks so we can help you overcome your challenges.

Integrity: I’ve never been worried about a founder stealing my money or a startup being a scam. It’s the half-truths and spin that are the problems, and it’s a fine line for founders to navigate. You want to appear confident and polished and highlight your successes, but sometimes that goes too far. Claiming you have no competition, for example, or failing to mention a difficult technical challenge will cause you to lose credibility. If you want us to believe the good news, you have to let us in on the bad news, too. Talk with investors like members of your team, not like customers.