How your team can make or break your funding round
What matters the most when it comes to raising an angel or seed stage round? There are obviously many factors that come into fundraising. Most VC’s will agree that having a huge market, competitive advantage, and strong business traction are all very important, but the majority of the decision comes down to the startup team. When Mark Suster, General Partner at Upfront Ventures, was asked for a one liner on how investors decide on startups, he replied:
“Team, team, team, market, team.”
So what does it mean to have a good team? Well, in the early stages of the company, a small team of people that are very passionate, persistent, and have complementary domain expertise and skills is paramount. They should be able to wear many hats and be willing to quickly learn anything they don’t know. People who appreciate structure might have trouble fitting in, as the company as a whole may have to face unpredictable situations.
Why do these qualities matter? Startups have a lot of ups and downs. This means the team has to be resilient and motivated even when things are tough. For example, if you look at how Airbnb got its start, it was very rocky and even got to the point where the founders had to make specialized cereal boxes based on the 2008 election to fund their core business through times when they were making no revenue. As YC’s Paul Graham likes to preach: in the beginning, you want your company to be a cockroach - small and impossible to kill.
The startup team is also very important to an investor because at this stage of the company it is really hard to predict how the idea will pan out. If the team has experience, is flexible, and works tirelessly to execute, then the investor can be confident that they will be able to iterate if their original idea is not working and grow the business correctly from the bottom up.
TARA is an Orange Fab Fellow (2016) that is building an intelligent product builder. Syed Ahmed, Co-founder of TARA, has helped lead the company through two funding rounds. When asked what he thinks helped him close financing, he said:
Startups should optimize for three things when raising money: team, product, and growth. Good teams make great products that people love, and that in turn translates into growth. Take out one of those elements and it becomes much harder to raise a round.
From what we have seen at Orange Fab, Syed isn’t alone in this thinking. We observed that when it comes down to startups that grow quickly and eventually receive a lot of funding, the strength of the individuals and how likely they are to stick together have a huge impact on the success of the company. In fact, In 2012 Noam Wasserman (a Harvard Business School professor) studied 10,000 founders for a book called “The Founder’s Dilemma”. In his study he found 65% of startups fail as result of co-founder issues. This is why when we look at startups at Orange Fab we try to not only evaluate their ability to succeed, but also see the likelihood that their team will stick together when there are bumps in the road.
There are many aspects to picking startups for a potential investment: traction, market size, product-market fit, technology built, competitive landscape, and many others. At the end of the day, the management team is the foundation and ultimate catalyst of the success--or failure--of the business and therefore is a key deciding factor for many investors.