Many early-stage investors have strong opinions on whether the founder or the market is the more important variable for success. Founder-centric investors say things like “a great founder can break through any wall,” implying that there are superhumans out there who can make anything happen. Whilst it’s true that there are individuals who are orders of magnitude better than others at certain things, many such traits aren’t observable in the short window of time in which you need to make an investment decision.
My experience has been that - assuming founders are of a high enough quality - the market is the more important variable. (High enough quality means the founders make high quality decisions, move quickly and have the potential to become formidable over time).
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.
Some more thoughts on why I feel this way:
- Assessing the quality of a founder is hard to do at the seed stage
- You can assess the quality of their decision-making, how fast they move, their clarity of thought, their ambition and charisma quickly.
- But many founders display these traits and I’ve found it ineffective to overindex on traits like charisma
- And smooth talkers don’t always make smooth doers
- You can also assess the quality of their engineering team and their likely propensity to be able to ship
- Sometimes, you can also assess their ability to hire quite quickly, particularly if they come from a pedigreed company or have an obvious network
- But not all founders have those networks from the early days. They can be built by virtue of building something great/something that’s working
- It’s harder to assess grit (without getting to know someone over a longer period of time).
- Some traits - like whether the person will become a good leader - are hard to assess in advance. I have backed first-time founders who became much more formidable as they were required to, but if you were evaluating them for a pre-seed or seed investment, you wouldn’t necessarily call them formidable
- 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
- People can become formidable over time. By only focusing on people who have all the skills already, you are overly restricting the pool of founders you should be backing
- I have now invested in some people who I’d consider to be “undiscovered talent.” Who, at the time of investing, were much less formidable than they were just a year later.
- 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