Investors weigh the person running a startup as heavily as the idea behind it. Founders who know what venture capitalists look for in a leader can prepare long before the first pitch meeting.
On today’s episode of Business Trends Today, George Deeb, Managing Partner at Red Rocket Ventures, explains what makes a startup CEO backable. Deeb is also a Forbes.com contributor and the author of 101 Startup Lessons: An Entrepreneur’s Handbook.
During today’s conversation, he points to six areas that investors weigh:
- Experience
- Credibility
- Leadership
- Sales skills
- Communication
- Passion
Investors back founders who have proven it before
Investors want proof that a founder has done this work before and knows the industry inside and out. Doing it multiple times turns the process into a rinse and repeat, according to Deeb.
"It doesn't really matter what the idea is at the end of the day. Some smart team will figure out how to make it work."
Being battle-tested also means understanding the intricacies of the industry. That knowledge helps a founder solve the problems that commonly hit startups in that field.
Credibility starts with a well-thought-out business plan backed by real proof of concept. Founders should already have proven the assumptions in their five-year plan with a test case in the market.
Transparency matters just as much when business goes badly, because investors listen most closely in those moments. Founders should explain why times are tough and how they plan to recover.
Great CEOs build the right team and point it at one goal
Founders with little management experience can still lead well by recruiting experienced people. The founder has to know what the team needs. Each player then needs the right position, which gives the whole organization the best odds of success.
Everyone on the team also has to pull in the same direction and understand what the company is building. Picture a travel startup where one person builds a cruise line and another builds an airline. That mismatch shows why everyone needs the same goal, Deeb said.
Clear key performance indicators (KPIs) give the team a way to track progress over time. Founders also have to make sure every employee knows what those goals are.
Investors want founders who can sell the vision and hear feedback
Listening is almost as important as selling for a startup CEO. A pitch works best when it speaks to what the listener cares about.
Selling means getting customers, recruits, investors and partners to believe in something new. Effective pitches focus on what the business can do for customers. That can mean raising revenue, lowering costs or improving the user experience.
Focusing on the customer sells more easily than listing features and functionality, according to Deeb.
“You’re getting people to believe in something that may or may not have existed before,” Deeb said.
Communication carries the same weight with investors. A founder who cannot clearly share the vision and get investors excited will not get far.
"If you can't clearly communicate the vision and get them excited to be an investor, then that's a major problem."
Listening matters even more once the company hits trouble. Experienced investors have seen similar problems across other portfolio companies and will suggest solutions based on what they learned.
They want to know the founder can take that input and pivot. A small turn of the steering wheel can keep a company from driving off a cliff, Deeb said.
Passion can carry a startup when times get hard
Passion helps founders get investors excited, since enthusiasm gives people a reason to rally around the cause.
Investors also look for the energy to knock down barriers. A love of the business can carry a company through good times and bad. It also keeps a founder from folding when things go wrong, Deeb said.
Founders also need to temper their enthusiasm. According to Deeb, there’s a fine line between seeming passionate and looking foolish.
Investors bet on the team before the idea
Every business ultimately comes down to its people. As Deeb puts it, an A-plus team with a B-plus idea beats a B-plus team with an A-plus idea.
Investors would rather back a company led by Steve Jobs or Bill Gates than one led by Mickey Mouse. The idea matters less than the team behind it, he said.
Pitching also runs in both directions. Investors have to sell founders on the fund and why it is the right partner. Founders should know what they want from an investor and which questions to ask.
ASBN, from startup to success, we are your go-to resource for small business news, expert advice, information, and event coverage.