Innovation

Build a Team of Founders Investors Will Love

A startup is only as good as its people. How to choose the perfect partners for your venture

Written by Sean Wise and Brad Feld

Investors may value serial entrepreneurs, but they love serial management teams. A team of founders who have worked together is a treasure, and a team of founders who have previously built a successful startup is a great treasure. Regardless of experience, a highly functional team generally trumps a solo founder.

At Techstars, we’ve invested in over 500 companies. While a few of them were solo-founder companies, the vast majority had between two and four founders. We’ve come to believe that two to four founders is the perfect number, and that at least half of the team needs to be focused on the company’s product. A founding team of four with three business people and one engineer is a sub-optimal configuration—the engineer will spend most of his time responding to the business people and the business people won’t have enough to do.

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The dynamics among the people on the team are critically important. Some founding teams consist of best friends while others are composed of people who have met recently. In any case, developing a constructive and effective working relationship is crucial. This doesn’t mean that the founders agree on everything or have similar styles. Many of the best teams we’ve worked with have had plenty of conflict. The key is whether the founders know how to work through and resolve inevitable conflicts.

When investors evaluate a team, they look carefully at how the founders interact with each other. A team that doesn’t have conflict may not have what it takes to make the hard decisions. Differences of opinion need to be challenging enough to ensure decisions are thoroughly vetted, yet amicable enough to overcome the daily grind of startup life.

MORE GROUP DYNAMICS: Why It’s Better to Lead With a Partner »

Harvard professor Noam Wasserman recently wrote a fantastic book on founding teams. The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup suggests:

  • Bringing in co-founders who have the technical expertise, sales background, or social connections that you lack;
  • Creating a more diverse team gives you access to a wider, more diverse network;
  • Avoiding co-founding with friends and family; the eventual conflict far outweighs the value.
  • Creating a clear division of labor helps accountability and creativity to flourish.
  • Having a plan to address problems. Don’t avoid conflict; make a plan for it.

As with serial entrepreneurs, a team with prior work history generates confidence for investors. YouTube founders Chad Hurley and Steve Chen sold their video startup to Google for more than $1.5 billion. So it is no surprise that investors (and media) paid attention on September 12, 2011 when the duo decided to take over the flailing social bookmark venture Delicious. Similarly, when the franchise czars behind Boston Pizza, Jim Treliving and George Melville, took over Mr. Lube, the world noticed.

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Investors like to reduce the riskiness of their investments by working with entrepreneurs who they’ve “been into battle with” before. Starting a new venture is an excursion into the unknown. If you can bet on a person or founding team that you’ve worked with before, you can eliminate some of the uncertainty around how a founding team will respond to adversity and how they will work and communicate with their investors.

As an entrepreneur, you need to be brutally honest with yourself and your potential co-founders about how well you will actually work together and what the stakes are if you’re wrong.

Dr. Sean Wise is an Assistant Professor at the Ted Rogers School of Management at Ryerson University and an expert on startups and venture capital. He spent five seasons as a consultant for CBC on the mega hit venture reality showDragons’ Den before moving in front of the camera as the host of the Naked Entrepreneur, which airs on the Oprah Winfrey Network.

Brad Feld has been an early stage investor and entrepreneur since 1987. He is the co-founder of Foundry Group and Techstars, and previously co-founded Mobius Venture Capital and founded Intensity Ventures. He speaks and writes extensively on the topics of venture capital investing and entrepreneurship.

Originally appeared on PROFITguide.com