For early stages investments, this is more art than science, nevertheless, there are some common traits that can be easily identified for founders of startups that can go from Zero to One, and certain metrics around traction and valuation that are useful:
Traits of successful founders
- They go after a “big problem”. Thinking from first principles. Build a real life business, solving real life problems – changing existing structures. Technology only magnifies whatever you can do.
- Ambitious entrepreneur, willing to work harder than myself in solving the problem and with a larger vision/ambition than myself.
- Knows the industry deeply, i.e., is an expert. Not only on a horizontal level but also on a vertical level (who are the suppliers, clients, competitors, etc.). Volumes, margins, pricing, etc., you should have done a lot of market research (doesn’t give up excuses like there is not a lot of research on this market out there).
- Founders that are coachable/mentorable, with the ability and appetite to learn/grow (growth mindset). The skills that you use at seed stage are not the same that will take you forward.
- Assertive but not aggressive.
- Willing to be disagreed with. Can disagree without being disagreeable.
- Has assembled the right team (complementary skillsets, etc.).
- Has put some thought into the infrastructure pillars that go into building great companies. Can break the lack of infrastructure barrier (build, outsource, acquire).
- Time and chance. Be at the right time, in the right place. “Money always has an agenda”, understand the agenda, you have to find a way to get funded: where your dreams intersects with investor’s (and their backers) goals. There is always capital if you look in the right places.
Metrics of success
- Traction: execution is king – right customer acquisition strategy.
- Right valuation? a fair price is driven by traction in terms of revenues, GMV, etc. Right unit economics (LTV/CAC going up on average, growth to churn ratio acceptable), scaling not necessarily profitably. You get judged by your traction, doesn’t matter that your valuation is justified by bigshot VCs already in your cap table.
“If you cannot do great things, do small things in a great way.”Napoleon Hill