When you are introducing your company to a VC for the first time, their brains are scrambling to try to form as much of an opinion as possible in a short amount of time. Many different details leave some sort of initial impression or are stored away in the “investigate later” category.
One of the most important things that VC’s take note of is the impression created by your choice of co-founders. I like to say that selecting a co-founder is the single most dilutive decision that a founding CEO can make, and so that decision can send all sorts of signals about a founder’s priorities, judgement and personality. Of course, it’s hard to evaluate people you don’t know in a first meeting, so any initial impressions are usually fairly loosely held. But below are a few founding team compositions that I’ve seen and the kinds of questions they raise in the mind of an investor.
Complementary and Equal
One common founding combination is the team that is complementary and relatively equal. This is often a business founder and a technical founder who have similar levels of experience and have divided their equity fairly evenly. These combinations can work really well for a long time and probably leave the best initial blink impression on investors. The questions that would arise is around the robustness of the partnership and the scalability of both parties. Both founders might be great, but it will be a big deal if one decides to leave or if there is conflict early on.
Was the partnership done in haste because it seemed to make sense on paper? Or do the two founders have some long personal or professional relationship that provides confidence that the founding team will remain robust over time? Are both founders versatile and strong enough to scale with the company over the next 3-5 years? Or is it obvious that one founder will quickly fail to scale and end up in an awkward position in several years? These are the kind of things that a VC might dig into further in the process.
The Alpha Founder
Another common configuration is where is there is a solo founder or a founding team with one clear Alpha that has the lion’s share of the equity. You sometimes see this with quite experienced founders who are starting off with a relatively junior team around them. Often the alpha founder has had more previous success and may have self-funded the company for a number of months or quarters. We are not zealots that founding CEO’s must have cofounders or that the equity splits should be equal. Sometimes that does not reflect the reality of the history of the business or the contributions of the early team members.
That said, we do pay attention to any red flags around control or ego. Does this founder want to impart so much control on their business that it will be detrimental? Is this founder willing to bring on great people who will challenge them? Or is the fact that this person is a solo founder a signal that he/she doesn’t like to be challenged and will fail to build the highest performing team possible?
Best Buddies, Non-Complementary
Some founding teams have optimized around the relationship between the founders. We might hear something like “we’ve known each other since college and we’ve always been looking for a way to work together.” This may be great in terms of the chemistry between founders. But what we often see is that the relationship ends up trumping more practical matters of fit. Either the founders will have backgrounds that are very very similar (in which case it’s an expensive way to split equity) or the backgrounds are different, but one person is just not super high-caliber. In these situations, I tend to be pretty honest about my impression of the team and try to understand how the founders think about dividing and conquering.
Certain companies may lend itself to multiple people with similar skill sets. For example, companies that are primarily business model innovations or managing complexity rather than building breakthrough technology or superior software execution. But I get worried when a company requires deep domain knowledge or a specialized skill-set and the founder/CEO has chosen a cofounder who does not address these gaps.
The Random Connection
I always ask founders how they got to know each other. You’d be surprised how often the answer is something like “we are neighbors and so we started working together”. This doesn’t mean that your neighbor may not be a great cofounder, but it certainly raises a bit of suspicion. In an ideal world, a great cofounding team is one where each person is uniquely qualified for the challenge they are pursuing. It’s pretty attractive when a founding team seems like a combination of people uniquely qualified to tackle a problem. It is much less motivating if it seems like a founding team is a product of convenience.