Launching Team Talks!
During last month’s WVC:E conference, I had the honour of speaking on the topic of Analysing Founding Teams. As a psychologist by background (seemingly and surprisingly rare in VC), it’s a topic I haven’t been able to shut up about. Thankfully Sophie and the WVC:E team gave me a platform and, on the back of the phenomenal turnout, this piece will unpack some of the ideas shared in that session.
More importantly, on the back of the voracious appetite to dive deeper into this subject (yay), I’m delighted to launch Team Talks! A quarterly series to share & dissect the cutting edge of what commonality truly exists among outlier founders, to better understand how we test and predict for success.
At Form, we invest at the earliest stages – where team analysis is touted as critical. VCs often talk about pattern-matching or “gut feel”. But in the face of transformational shifts in tech, how confident are we that the traits of unicorn founders of the past remain a template for the outlier performers of the future? More broadly, given outcomes are so specific to any given market, at any given time, can unicorn potential truly be systematically identified in early founding teams, or is it obvious only in hindsight?
During the WVC:E session, investors shared the traits, tests and tools they use to tease out outlier potential. I shared research from our work at Form including a synthesis of interviews with top tier funds about the characteristics they value and methods we deploy. To kick off the session, I shared three controversial provocations from the research to stimulate discussion and find the edges of our shared understanding. The three provocations were:
1. Investing in great teams is no better than investing in bad teams, if we aren't capturing that outlier performer.
I say this to up the ante of aim of team analysis. One of the biggest challenges of VC is that we meet so many high-quality founders capable of building successful businesses. However, the power law suggests that a great founder – who will create value, scale modestly, and generate a great-but-not-outlier outcome – is almost as inconsequential to fund returns as a “bad founder” who delivers no lasting value.
Our job therefore exists in the finest of margins—in understanding the difference between great and outlier. This means we may not (always) be looking for intelligent, competent, coachable people. We need the founders who will turn good into great, and great into unreasonable. People who will say no to the opportunity to retire their entire family after a few years of work, in search of something more. Team analysis should be viewed as a commitment to the outlier – looking beyond obvious skills or accolades in pursuit of that rare potential to outperform.
2. Self-Awareness, Ambition, and Trauma: The Ingredients of Outliers
We talk a lot about ambition – considered table stakes in any fund’s team analysis. A founder has to be able to compellingly describe themselves as a leader of a huge enterprise (not necessarily by size of team), as well as demonstrate the depth of thinking that justifies that self-perception. I.e., They must explicitly state huge ambition and also convince investors that they have already and will continue to optimise decision-making to achieve this world-changing vision.
The latter – the need to convince investors – speaks to the difficulty of assessing ambition without bias and standardisation across cases. Many funds seek out founders who have been top performers in previous environments, or repeat founders, who “know what it takes” and are less encumbered by financial temptation, as a shorthand of assessing the composite factors and manifestations of a founder’s ambition.
Here we can get into the data a little more. It’s easy to associate outlier founders with traits like experience, charisma and willpower. But across the papers, books & interviews, 55% identified self-awareness as one of the top traits correlated with outlier founders. One VC study compared founders’ self-perception with their team’s perception of them, and found that the smaller the discrepancy, the better the company performed.
Though self-awareness sounds a virtue, it’s as much an acceptance of one’s weaknesses as one’s strengths. And it may be what sets exceptional founders apart from the rest.
Assessing trauma is significantly less common in VC assessments, though recently popularised by Mario Gabriele’s coverage of Hummingbird Ventures. The thesis is that the best founders have transmuted painful life events into a fuel / hunger needed to achieve extraordinary outcomes. These individuals possess the kind of resilience needed to navigate the challenges of building a world-changing company.
This thesis resonates with my view of human psychology – experiences of adversity can decrease fear of failure, and increase stress-tolerance and appetite for risk. It’s also correlated with addiction and addictive personality traits, which are hyper-proportionate in ultraendurance athletes – a common analogy of what it’s like to run an outlier organisation. A “chip on one’s shoulder” is a subjective experience; even those who seem privileged and well-adjusted may have one.
It’s critical to acknowledge that the search for trauma can quickly become exploitative and triggering. The VC/founder power dynamic is already incredibly messy – investors must act with wisdom and exercise the utmost consideration before choosing to probe into sensitive chapters of a founder’s past. Linking to our third and final provocation:
3. Embedded team analysis is not enough. We have to intentionally set aside time to understand a founder.
Embedded analysis involves evaluating a founder’s mindset indirectly through observations and interactions, as opposed to through direct questioning. It ranges from assessing communication style to running secret tests to see how a founder responds.
One of the appeals of embedded analysis is that it may seem less prescriptive or prone to bias than asking directly about e.g. motivation, ambition, or self-perception, which result in answers that may be easier to script/fake. Context like the market, sector and team makeup are also so varied it can feel near impossible to ascertain what a “good” answer should look like.
While some traits and behavioural indicators are perceptible during the course of typical diligence, to be able to properly understand someone’s motivations you have to create the space and be willing to go deep. Understanding what is (and isn’t) driving a founder is essential, not only for the long-term working relationship but also to deepen the view of the founder you’re creating and dispel assumptions or prejudices. At Form, we create space for the founders to ask us personal questions back – the best founders are assessing us as much as we’re assessing them.
What do you think? If you think I’m wrong, you’re probably right – there’s a mountain of evidence and counter-evidence in your processes and experience, and I’d love to explore your strongest views. Sign up to Team Talks to dive a level deeper with me.
Reading List
Interviews with UK and European seed funds
Index Ventures, Scaling Through Chaos
Village Capital, Evaluating Founding Teams
Guimtrandy F, Burger-Helmchen T. (2022), The Pitch: Some Face-to-Face Minutes to Build Trust
Balachandra, Lakshmi & Sapienza, Harry & Kim, Dennie. (2015), Investor Mentor: Evaluating the Entrepreneur as Protege
Ali Tamaseb, Super Founders: What Data Reveals About Billion-Dollar Startups
Balachandra, L., Briggs, T., Eddleston, K., & Brush, C. (2019), Don’t Pitch Like a Girl!: How Gender Stereotypes Influence Investor Decisions
Sifted, VC Founder Due Diligence
Defiance Capital, Unicorn Founder DNA Report
Mario Gabriele, The Best Venture Firm You’ve Never Heard Of
Sam Walker, The Captain Class