Many early-stage investors have strong opinions on whether the founder or the market is the more important variable for startup success. Founder-centric investors say things like “a great founder can break through any wall,” implying that there are superhumans out there whose sheer force of will can make anything happen. Whilst it’s true that there are individuals who have orders of magnitude more grit (or other such traits) than others, often the intensity of these spikes aren’t observable in the short window of time in which you need to make an investment decision.
My experience has been that the market is the more important variable. Said another way, without tackling a deep pain point in a fast growing market, even “great” founders can’t achieve outsized success. A huge caveat: this assumes that founders surpass a certain benchmark of quality. For me, that benchmark involves feeling conviction about the founders’ ability to make high quality decisions, move quickly and having the potential to become formidable.
Some more thoughts on why I gravitate towards market instead of predominantly assessing the quality of the founder:
- Some founder traits (like decision-making quality, customer centricity, clarity of thought, propensity to ship, ambition, storytelling skills and speed of execution) can be assessed quickly. But most investors will also assess them in the same way. And in practice, many founders display these traits, meaning that it wouldn’t be a strong enough filter. After all, entrepreneurship often attracts smart, motivated and gritty people
- I’ve found it ineffective to overindex on some of the most obviously visible traits (like storytelling and charisma). Smooth talkers don’t always make smooth doers
- There are people who clearly spike at something (e.g. incredible salesperson, amazing marketing skills, 10x engineer). But these traits are obvious to most investors, making it difficult to have any alpha. And in my experience, these people come around pretty rarely
- It’s often hard to assess someone’s level of grit without getting to know them over a longer period of time
- With pedigreed founders, you can often size up their ability to hire. But I’ve backed several founders who didn’t have strongly established networks and have been able to hire well as the company grew. Said another way, this can be a muscle built over time by virtue of building something people want
- Similarly, founders can evolve into becoming formidable over time. Several strong founders we’ve backed have become more formidable, growing with the company - but didn’t clearly display that ability at the pre-seed or seed stage
- The definition of a “great” founder is completely subjective across VCs (and often biases towards people who are good talkers). In my book, part of being a great founder is finding a great problem to solve
- I’ve seen great founders struggle to sell a certain product, then pivot and see their sales take off. To me, this is the best signal that market matters, since the skills of the founders are unchanged
- More specifically, I think depth of pain point ends up being more important. Some signals that can demonstrate this depth include:
- Ease of sales - high demo to close ratios, ease of selling without strong sales chops
- Many successful old school companies in a space — e.g. debt collection has many agencies doing hundreds of millions of dollars in revenue
- The ROI of the product being so substantially better than the status quo. The quality of the solution is itself a proxy for the depth of the pain point. Allowing someone to make more money, save substantial costs or become massively more efficient is a great signal
- Market tailwinds matter.
- In certain spaces, there are several companies growing extremely quickly - e.g SMS marketing, dietitian marketplaces. Being in the category is a “rising tide lifts all boats” phenomenon
I will caveat this by saying that every once in a blue moon you do meet someone who is absolutely fantastic i.e. their talents jump off the page. It’s dangerous to bet against those people even if you don’t fully believe in the market they are pursuing at that point in time.