How Do You Know if a Startup Team is Investment Worthy?

Most angel investors will tell you that the team is the most important thing to consider when vetting an angel investment. As David Cohen says, “At Techstars, we look at five things: team, team, team, market and idea in that order”. But what does an all-star “team” really look like? And what questions can you ask to figure out if you’ve found one?

When I first started angel investing, I did a bunch of research to put together a very scholarly criteria to adhere to. I made some investments in things that checked my boxes and I slept soundly because I had done my homework. But, there was one problem. I didn’t particularly enjoy spending time with some of the companies I invested in.

My scholarly criteria didn’t account for the fact that I actually needed to have fun as an angel investor, so I needed to readjust. I decided I would only invest in companies in which I could answer “yes” to all of the following questions:

1)       Did I understand the company’s value proposition within five minutes of talking to them?

2)      Are they deeply passionate about their business and did their passion help instill my passion for their business?

3)      Do I trust their ethics without question?

4)      Is the CEO smarter than me?

5)      Am I inspired every time I meet with the team?

6)      Do I view a meeting with the company as a privilege rather than a chore?

7)      If the tables were turned, would I want the team to invest in my company?

8)      Do I admire and respect the team members enough that I would want them to be board members/advisors for my own company?

When I looked through my portfolio to see which companies were a “yes” for all eight of these criteria, I realized the “yes” companies were actually my top performing investments. Coincidence? Maybe, but I think there is more to it. While these questions establish my personal chemistry with the team, they also determine whether the company is led by a great leader and a solid team.

An entrepreneur’s ability to instill passion and motivation in others (employees, volunteers, investors) is a very important ingredient for success. If they can’t inspire, gain trust and earn respect from me as an investor, how will they do that with customers, partners and their employees?

I think these questions go a layer deeper to view the heart of the entrepreneur. To me, that’s the most important thing to invest in.

What do you think?

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