In his book The Startup Game, VC pioneer William H. Draper III asserts that one of the key ingredients for a successful startup is having founders who are “…smart enough to understand how the world works today and are able to envision a range of better outcomes for the future.” He’s talking about the ability to understand the industry and create value by disrupting it.
Most VCs agree that there is one factor that is most important when deciding to invest in a startup, one thing that predicts success better than anything else: talented management. The people are paramount.
To my ear, when I hear VCs say this, I interpret it as a risk reduction strategy. I would say it this way: the #1 way to mitigate risk in any new venture is to have the right people—ideally, seasoned entrepreneurs who are experts in their industry. One of the biggest misconceptions about entrepreneurship is that the idea is paramount. Many people believe that the key to success in a startup is the great idea. VCs disagree. It’s the people who are most important; ideas cannot do anything. VCs would rather back an A team with a B idea, or an A jockey with a B horse. It takes people to get things done, and not just any people, the right people.
For example, imagine you are just meeting me on an elevator, and I begin telling you about my idea for a new sharing economy startup. You may be in the middle of a yawn (who is this Vernon character thinking he knows about the sharing economy?) until you hear that my co-founder just quit her job as the chief marketing officer at Uber. Can you feel a large portion of the risk leave the room?
If we are looking to minimize risk with the best possible team, let’s look at how VCs would define “the best.”
Also covered in this chapter:
- Serial Entrepreneurs
- Industry Expertise
- Vision, Coachability and Customer Passion
- Origin Story
- Skin in the Game
- Founder/Investor Conflict
- Replacing the CEO
- Holes on the Team
- Advisory Board