What do you look for in a company before investing? originally appeared on Quora - the place to gain and share knowledge, empowering people to learn from others and better understand the world.
The team is the first and most important factor for me when deciding whether to invest or not. That's even more the case when it comes to early stage/seed investments. I typically look for founders that have a lot of tenacity, a unique, strong point of view, and a non-standard background. Getting a company started requires enormous amounts of energy, focus and perseverance -- especially through the hard times and tough decisions, which will happen. A non-standard background is a good indicator that someone has a unique point of view, isn't happy with the status quo, is able to take risks, and wants to do something different.
More specifically, there are three traits in a founder that are most critical in my opinion: demonstrating achievement, learning, and storytelling.
- Demonstrating achievement, whether academic, professional or personal is a sign of perseverance and a strong indicator of a founder's ability to go deep on subject matter. If this has been done in the domain you're building a company in, that's even better.
- Learning is vital -- hypergrowth companies quickly outpace the capabilities of everyone on a team. A founder's ability and zest for learning will help them scale with the company and keep up with the stages of growth that go into building a significant business. The best founders I've met suck knowledge out of everyone.
- Storytelling is often overlooked, but as a founder you have to convince and motivate an ever larger pool of people to believe in your vision. It's hard to do that without being a great story teller. However, it doesn't mean you have to be Steve Jobs -- storytelling and influence can come in many forms, whether through sheer force of leading by example, or the gift of gab.
Secondly, I look at the business model and the market. Market sizing is notoriously hard -- some of the best companies, Dropbox included, looked like they were going after niche applications that wound up becoming universal problems. Some markets will never be that big and that's easy to eliminate. In other cases, large markets exist and may have large incumbents, so the question is whether it's possible to build something of scale. In either case, I always ask the "what if?" question -- what if the team achieves their vision in an existing large market? What if the company can create a large market for itself? If the answer is yes and if the founding team really understands the market and its dynamics and thinks long term, it's a bet worth making.
When investing in later stage companies, it's about the team and data. At this stage there's customer and market data and we look at numbers and future growth projections to gauge whether a deal makes sense financially. We also do a fair number of due diligence calls with key team members, customers, and other investors (if applicable) to better understand how the team operates, if they communicate a clear and consistent vision, have a 5-year+ product roadmap, and what kind of traction they have with customers. On the team side, the key thing I look for is the desire to build a really big, high-growth company. This desire is typically reflected in a maniacal focus on talent and a constant re-evaluation of the quality, stage-fit, and structure of the organization. Founders who bet ahead on talent and maintain urgency can create massive opportunities.
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