I am frequently asked the “jockey or the horse” question – whether it is the team or the idea that is most important when considering an early stage investment opportunity. The real answer for me is that both are critical in the decision process. That being said, although I may invest in a company where the “idea” is not 100% formulated, I will always walk away from any opportunity where I am not completely convinced that the right team is in place and more importantly it is one that I want to be in partnership with over the long term.
What defines the “right” team?
There are several criteria that I employ when I evaluating the founders and management who comprise the “team” of an early stage investment opportunity:
Character: This is the most important variable to me and by far the most difficult to evaluate. The Josephson Institute defines the “six pillars of character” as encompassing: trustworthiness, respect, responsibility, fairness, caring and citizenship. Angel investing typically involves a long-term relationship. When conducting due diligence on the team, it is important to include reference checks with those who have done business with the team before to see how they measure up on the “character” scale.
Experience: Does the team possess the skill base they need to actually execute the plan and if not have they identified the gaps. In other words do they “know what they do not know”?
Leadership: Many of the entrepreneurs I meet are first-time CEOs. The ability to lead the organization, through both managing and motivating the entire team is a real skill. We have all experienced, either directly or indirectly, the “boss from hell” – the screamer, the critic who offers no real constructive suggestions… Be alert to the team dynamics during meetings; sometimes how the entrepreneur(s) treat the support staff ( yours or theirs) can provide some great insight into their true leadership capabilities.
Coachability: Last, but certainly not least, it is important to consider whether your team will be open to “coaching” from investors, advisors and board members. In the perfect world, which I have yet to experience in angel investing, revenues ramp up on track, the business model works perfectly and everyone is happy. In reality, every business and team will face “detours” which can be in the form of new competitors, a change in the economic climate, or a host of other factors that require a company to “pivot” from their original strategy. The ability to adapt to new situations and work with investors to come up with solutions during these periods is critical.
Each angel investor needs to determine for themselves the answer to the “jockey or the horse” question and how best to invest in people, ideas and companies that will make it to the “Winners Circle”.