When most people think of startups, they believe that it is the founder who pitches to investors in order to raise money. However, you could also flip this and think about it from an alternative angle – that investors are hiring founders to earn money for them. After all, when you hire an employee, you pay him a salary so he can do a job for you – and isn’t this exactly what investors are doing? The only difference, of course, is that instead of a salary, you’re purchasing equity in the founder’s company.
The Founder’s Job Profile
The basics still remain the same – money changes hand, and the founder’s job is to run the company well. The difference is primarily that it is the founder who writes his own job description, where as, in a traditional job, it’s the boss who tells the employee what to do. It’s helpful for the founder to start thinking of himself as being employed to run the company. This will help him to manage his investor’s expectations, since he will understand that he needs to behave with them exactly as he expects his workers to behave with him!
I believe the most important asset for an investor is not his analytical ability to identify the best idea; or even the size of his fund – it’s his ability to judge people. When angels decide which company to back, they are really making a bet on the founder – they want to find one they can trust will be able to steer the company towards success.
If the founder is good, no matter what hurdles he encounters, he will still be able to deliver – just like a top grade employee will be able to perform, no matter what the environment.
Identifying A Good Founder
This is why people skills are so important for investors – they need to identify which founder will be able to deliver; and which founder has integrity, so that they can trust him. The problem is that most of us have terrible people skills – and what’s even worse, we don’t even realise this!
Because we are judging people all the time, we think this is something we are very good at. Most of us take pride in our ability to “read” people, but it can take 2 to 3 years to realise that we backed the wrong founder – and this can be an expensive mistake.
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One of the reasons why it’s so hard to become a good judge of people is that we find out their true colours, only after many years. Since the feedback is so delayed, we often forget our initial impressions and why and how we got misled.
When the cheque hits the bank, there’s usually an initial honeymoon period when both the founder and the investor are in love with each other, and everything is hunky-dory. It’s only after he encounters a problem that you realise the difference between good founders and bad founders – those you can trust, and those you can’t.
The Difference Between A Good Founder And A Bad One
When there’s a problem, is he willing to share what went wrong? Is he thoughtful enough to understand why things didn’t go as planned? Is he willing to accept responsibility for the errors? Does he have the maturity to ask for help? Does he have a plan to fix the problem so he can move ahead? How will he prevent similar problems in the future? What has he learned?
This is why, the only question we ask ourselves when we are backing a startup is whether or not we can trust the founder. This is why doing reference checks and talking to his friends and previous employers is becoming so increasingly important.
I also think women are better judges of people – it may be that their ability to look past the facade people put on is better, because they don’t get taken in as easily by a fancy resume or external spit and polish.
It’s important to take your time doing your checks. It’s a good idea to do multiple interviews over time, and different people on your team should do these? Is the founder consistent? Does something smell wrong? Trust your intuition and gut feel.
Take these interviews seriously. You need to prepare for them by checking his LinkedIn profile, so you can ask focussed questions. During these conversations, allow him to tell stories. Look out carefully for what the founder does not say – what he hides is often more important than what he says.
[This post by Dr. Aniruddha Malpani first appeared on LinkedIn and has been reproduced with permission.]