As venture capitalists (VCs) increasingly pour money into startup businesses, it is not uncommon for them to bet on people – especially founders – over the businesses they propel. This is because venture capitalists know that the business’s success is dependent upon the people behind it, not solely on the business itself.
VCs know that aside from the business’s product or service, the team behind it makes or breaks the business. In most cases, founders are the most visible members of the team and have a huge influence over the direction of the business. This means that VCs must form a close relationship with the founders to ascertain whether they are suitable to see the business through to success or whether they should look elsewhere.
VCs are also aware that adequate leadership is required to manage the complexities surrounding a business, develop sound strategies and to drive growth. They need to be comfortable that the founders are laser-focused, have excellent problem-solving skills and believe in their product.
Having the right leadership ensures that the businesses venture capitalists invest in are on the right track to make a profit. When founders or leadership teams are successful, businesses tend to succeed as well.
Furthermore, without experienced founders or leadership teams, businesses cannot expand quickly or hire the necessary talent. Hence, a stable, experienced leadership team is essential for scaling a business and managing risk.
VCs also need to be reassured that founders have a sufficient understanding of the market and competitors, and are thus making sound decisions. Furthermore, venture capitalists need to be confident that the team behind a business is highly motivated and dedicated to achieving the business’s goals, as well as their own personal goals.
In conclusion, VCs often bet on people rather than businesses. They understand that the team’s experience, skills and motivation are the ingredients that will determine a business’s success. For this reason, VCs must form a close relationship with the founders and other major stakeholders to determine whether they have the necessary qualities to make their investment worthwhile.
