More than 63% of tech startups fail during their first year. VCs are well aware of these statistics, so when deciding to invest, they aren't just looking at a business idea — they look at founders.
Will this particular founder be able to implement the idea she's come up with?
Working for years in the venture capital industry, Initialized Capital managing partners Brett Gibson and Jen Wolf have developed their own formula that makes a great founder.
They have a vision
"Strong founders don't just build great products — they build great companies," says Jen Wolf. And according to him, strong founders always have a long-term plan; they have a vision for their companies and see how to achieve future goals.
A good exercise for founders is to come up with a compelling story about the launch of their startup: how they founded the company and what their first steps were. If there's a "launch story," it will be then easier to develop a "story" of the company's future.
"We are looking for the founders who can tell us what the future will look like," says Brett Gibson.
At the first meetings with investors, founders always tell exciting things about their startups. For investors, however, every deal is a risk.
As an investor, you always wonder if the team can implement what they say and what the result will be. That's why another important quality of outstanding founders is an obsession with what they do, according to Gibson.
And obsession is not when you just talk about your company and its prospects — it's when you show concrete numbers and results. "Telling instead of showing" is one of the main mistakes a founder can make, says Gibson.
Investors don't want to see your CV — show them what you've built and how you made it work.
"In my perception, an obsessive founder is like an encyclopedia about his project," Gibson says. "It's someone who has already done a lot of work and thought deeply about the idea and market opportunities."
They know their market
Industry players often talk about "product-market fit" as an important concept when assessing a startup's chances to succeed. But for many investors, "founder-market fit" is as essential, according to Gibson and Wolf.
Startup founders must have a personal and emotional connection to the problem their product solves. This detailed understanding of the market and involvement will help them cope with ups and downs throughout the startup's lifecycle.
That is why investors look at the founders' previous experience. If, before launching a startup, they were in the logistics industry for 10 years, and now they work on an EdTech startup, this will cause doubts.
Key signs of a founder-market fit:
Industry knowledge. A founder has worked in the industry for several years (ideally, in different roles).
Vast network in the field.
Understanding the market challenges and how to solve them; knowing who the competitors are and how to outperform them.
Knowing customers and their pains, being able to provide what they need.
They learn to lead people
The world is changing, and companies constantly face new challenges: pandemics, economic downturns, climate problems, and wars. According to Gibson and Wolf, it's the founders who must lead their teams through such challenges.
A recent study shows that 83% of organizations "believe it's important to develop leaders at every level of the company" for any business to be successful, and that only 48% of employees view their company's leadership as "high quality."
The founder is the person people look up to, expecting directions, appreciation, and advice. If founders don't improve their leadership potential, communication and problem-solving skills, they won't attract the brightest market talents to their companies.
Employee turnover statistics show that 41% of people leave their jobs because they're unhappy with senior management.
World-class founders don't just create products — they drive the future. Those who are just chasing money will lose the competition to founders who know how to lead people, who study their market, and who have a clear vision of their company's goals. People like this will always have a better chance of creating a unicorn.
This column is based on a speech given by Brett Gibson and Jen Wolf, managing partners at Initialized Capital, at the Web Summit conference in Lisbon on Nov. 2.