I started investing in the public markets world. I invested in single stocks on my own throughout high school and college, managed funds on campus at Harvard, and worked in asset and portfolio management. In recent years, my focus has been much more in venture and particularly in the early stage. I work with Soma Capital (a Y Combinator focused fund whose portfolio includes Cruise, Rappi, Lambda School, and Ironclad) and previously with Rough Draft Ventures (General Catalyst’s student founder’s fund), Global Founders Capital (a stage agnostic fund with portfolio companies such as Facebook, LinkedIn, and Slack), and Romulus Capital (an early stage fund focused on B2B, research driven innovation).
In public markets, only a portion of the investment thesis is focused on the management team. Instead, each decision is typically based on a triangulation of numerous data sources, both strategic and numeric. In contrast, in early stage venture, a large majority (and sometimes the entirety) of the investment decision rests upon evaluating the founders and the founding team. In the early stage, the product and corresponding market could (and in many cases, should) pivot at any point in the near or medium term future, and all that remains constant is the team.
But how do you identify great founders? The stereotypical founder popularized by HBO’s Silicon Valley show and Instagram meme accounts have elevated words like “visionary,” “gritty,” “confident,” “daring,” and “charismatic” to identify iconic founders. But what do any of these words really mean? And are they the right way to find the best founders? While everyone focuses on these stereotypical traits, how do you spot and build relationships with high potential founders that others are missing?
In the past year, I have spoken with well over 100 founders across a wide range of geographies and sectors. While the evaluations of businesses in each industry and location can vary greatly, the core traits and formative experiences that shape a great founder are largely universal. Here are the 11 most prominent.
Have done something ridiculously challenging just for fun. Ask founders about their side projects, even ones seemingly unrelated to their current business. In overcoming obstacles without a strong motive or external pressure, you can find those founders who are process driven, rather than outcome driven. These founders can thrive in the uncertainty of building something from nothing even before they have achieved success; the focus for them is the journey rather than the end goal. Ultimately, there is no way to rationalize becoming a founder on the basis of short term money or fame. Founders need to be irrational in this regard and have a true love for the experience of doing something incredibly challenging with a nonexistent immediate motive.
Have had to build, rebuild, and rebuild again. Ask about research experience. Founders with extensive research experience will likely talk about their response when they lost key data or samples they had been building for months or when they had to start anew when an initial direction they pursued proved unpromising (much like the experience they will soon go through as startup founders). There are other ways, too, of course that founders have had to repeatedly rebuild, perhaps after a traumatic experience or other major life challenge. Understand how founders respond to having to start over.
Deep personal connection to the problem their business is solving. More than just an interest or even a passion, founders need a perpetually meaningful reason for building their business. Perhaps they are creating a device their grandparent needs to cure an illness or function better with a disability. Perhaps they are creating a platform that democratizes access to opportunities that would have changed their own lives or their parents. Look for the driving force that will remain when long periods of seemingly endless roadblocks wear down any surface level passions.
A period of existential crisis before finding their inspiration. Founders frequently need to find, first hand, that more mainstream paths are meaningless to them. They need to go down the mainstream rabbit hole to extinguish any what ifs outside the entrepreneurial world. This gives founders conviction to explore their own path and know that even on the most difficult days, there is no job they would rather do.
Experience of rejection or failure at an early age. In spite of what anyone may say, failure and rejection are immense sources of fear for most people. Many people have gone through their entire early lives without much of either, so their response to future failures is unpredictable. Moreover, in their minds, the fear of their first failure and the ambiguity that lies beyond that unexplored territory trumps the promise of opportunity, so ultimately, they will take fewer swings and have fewer opportunities for breakout success. In contrast, founders who have lived through failure and know, first hand, that nothing is the end of the world are much more likely to take the needed startup risks.
Have less to lose (because they have less to start out with). For these founders, life is much like a call option. They take chances when they get them because they see the potential of each opportunity > danger of failure (or loss in case of failure).
Cannot have a one track mind. In contrast to the stereotypical founder with the sole lifelong dream, founders cannot be married to a single idea. They will inevitably need to pivot numerous times to find product market fit. Having a one track mind creates tunnel vision and a rigid business unable to adapt to changing dynamics.
Have patience. The famous Silicon Valley motto of “move fast and break things” is only true to an extent. You need to move with alacrity AND intention: a distinction of speed versus tempo. Speed is just the pace at which you move but tempo implies intentional structure along with pace. Make sure founders have the patience to learn all they can to build a strong foundation so that they can move quickly but also strategically.
Ability to balance contrarian thinking with fact driven thinking. Great founders need to find an underserved market or a way to better solve an existing problem, and in this way, they must have a contrarian mind. But, they need to balance this mentality with a data driven, realistic, grounded approach to decision making, being willing to explore alternative ideas based on evidence.
Willingness to evolve as a person over time. Founders need to be different leaders at different stages of the business. An early stage founder with 5 employees must take a very different approach from a growth stage founder with 1,000 employees. Founders need to be willing to intentionally evolve with their company and at their company’s pace rather than their own.
Be selfless. Ultimately, great founders are some of the most selfless people. They are taking a huge personal risk to make a major bet on themselves and a way in which they can help our world become better (which is what first made me fall in love with venture). In tough times and when the decision may come down to it, great founders put the company before themselves. They do what is right by the company rather than taking the path of least resistance.
So in your next conversations with founders, look beyond their LinkedIn profiles and their alma mater. Rather than exhaustively noting down every metric marginally relevant to their business and market, actually get to know founders and their stories. Take a step back and try to truly understand what gets these talented people to do something so brave and so unique. Hopefully, the learnings above will guide you.