Unicorn Hunters (1): Invest in the Team, Not the Résumé

Unicorn Hunters—1 Investing in the team Smart investors always start by looking at the team. In Silicon Valley, venture capital firms like to say they are betting on the team, not a particular idea or business. The team really does matter more. You can have the best idea in the world, but if your team is poor, you are likely to fail in execution, leaving the business worthless. Remember that startups are not mature companies; they are works in progress. If a startup has a winning team, even if its initial idea is wrong and its business model does not work, the team will eventually find a solution, change the company’s direction, and keep iterating until it finds a way forward. So what factors make a team successful? And how can you tell whether you have any of them? The first person to look at is the team’s leader. The CEO is the most important person on a team. A weak CEO often means poor coordination among the team’s different functions. A company without a strong leader cannot grow quickly; the person who takes responsibility for the company matters enormously. But how should investors determine whether a CEO is up to the job? What qualities define an outstanding leader? One of investors’ most popular screening criteria is the university the startup’s CEO attended. Many founders seeking venture capital are young and have little experience; their résumés are often less than a page long. What work or life experience would a recent graduate have? A job in the dormitory cafeteria? One or two internships? There is only one thing that can make them stand out: the university they attended. That is why investors focus on it. Investors believe that if the CEO attended Harvard, MIT, Stanford, or another prestigious university, the founder must be CEO material. Although that may make sense in some cases, it is not universally true. Admission to a top university has more to do with test scores and extracurricular activities than innate leadership or the ability to run a business. A founder’s potential to get into Harvard does not mean they can inspire, encourage, and lead a company. Many graduates of prestigious universities will never become entrepreneurs. They are better suited to working in schools, research institutions, government, and similar settings. Putting too much emphasis on founders attending prestigious universities is bound to lead you astray. It not only creates a false sense of optimism, but also leads you to dismiss some very interesting personalities: rebels, free spirits, and late bloomers, many of whom choose unconventional paths in life. And even if you have never attended a prestigious university, do not be discouraged. You might be surprised by how many successful entrepreneurs never went to a top university. Take Jack Ma or Steve Jobs. Should investors pass up the next Jack Ma or Steve Jobs simply because they did not attend a top school? Too many investors fall into the Ivy League trap. They equate a university’s name with success, blinding themselves to some of the things that matter most. Personal qualities are ultimately the most important factors in a person’s success. What should a CEO look like? What sort of person should they be? Why did they start this particular business? What does it mean to them? Have they achieved anything noteworthy in the past? Are they the kind of person who steps forward, volunteers to take responsibility as a leader, and inspires others to build a company with them? Have they overcome extreme difficulty and uncertainty? Do they already have the ability to lead a company, and is there a respected mentor to guide them? All these things can show whether the founder in front of you really has the ability to build a company that changes the world. Another mistake investors make is putting too much weight on résumés. They tend to favor founders who have worked at highly successful technology companies such as Apple, Google, Amazon, Microsoft, and Tencent. It is certainly good that a CEO has worked at a world-class company, but that does not mean this person will necessarily make an outstanding startup founder. Google has more than 60,000 employees, and Microsoft has 125,000. They are not all born with the ability to run a company. Most are simply better suited to working at Google or Microsoft. Likewise, a person’s title is not as important as people imagine. Being a senior VP is certainly impressive, but many VPs are excellent executors rather than natural risk-takers. So, compare a junior project manager with a senior VP: the former will often champion a new idea and be willing to bring it to market, while the latter often does almost nothing beyond giving a project the go-ahead. Smart investors look beneath the résumé and dig into the kinds of decisions a person made and the responsibilities they carried in their previous job. When unicorn hunters conduct due diligence on a startup, they assess the founder through in-depth investigation and a series of questions to the entrepreneur. They want to know: did this founder come up with original ideas? If so, how did they persuade colleagues and manage their team? What obstacles did they encounter while advancing and implementing those ideas, and how did they overcome them? Did any of their decisions lead to failure? What did they learn from those setbacks? Questions like these help unicorn hunters see whether a CEO can handle difficult situations, persevere under pressure, and creatively solve seemingly intractable problems. Unicorn hunters also look at the founding team. Who did the CEO bring onto the team when starting the company? If the whole team consists of similarly dependable people, you can infer that something special must have happened. Unicorn hunters ask the CEO how they met their cofounders. Did they simply pull together a few people who happened to be available, or spend considerable time finding the best candidates? Could their employees easily find jobs paying six-figure salaries, yet choose equity in the company and decide to work for them instead? How did the CEO persuade them that joining this startup was their best option? Outstanding leaders are like magnets, powerfully attracting all kinds of talent. People are willing to work for them even when following them means taking enormous, even irrational, risks. In fact, only leaders like these can persuade employees to believe in the company’s mission rather than the money in front of them. That is why startups with almost no resources can surpass established companies and beat them on their own turf. Almost nobody can build a unicorn alone. It takes a team, and the CEO is simply the catalyst who gets everyone moving. Jack Dorsey did not build Square entirely by himself. Reid Hoffman did not take LinkedIn public entirely on his own. Without the support of many outstanding people, Ma Huateng could not have built Tencent to its present scale either. If a CEO cannot build a top team from the outset, do not expect the company to achieve much later. Usually, things will only get worse. That is why the team should be the first test of a CEO’s leadership. If a CEO can assemble a successful team with nothing but words and equity, they have the magic to make things happen. In short, the most important quality a CEO needs is leadership. A strong team with an outstanding leader can find its way in almost any circumstances. When evaluating a team, unicorn hunters do not just ask about its members’ backgrounds. They also want to understand their relationship with the CEO. What makes this CEO so special? Do they truly trust the CEO? What motivates them? Will they stick with it when problems arise? A strong team honors its commitments 100% and believes deeply in the company’s mission. For its members, this is more than a job; it is a matter of life and death. They are willing to go down with the ship. That attitude is what defines a successful startup. Unicorn hunters try to understand the team’s mindset, because its members’ views of the company and one another have the greatest effect on the outcome. Many teams look excellent on the surface, but once you peel away the layers, you discover they would never survive their first year as a startup. That is why unicorn hunters spend more time analyzing a founding team than anything else. Do you have a team made up of top professionals and true believers? If not, you have some serious homework to do. #穿越寒冬 #SurvivingAStartup