Doriot Roundup: The "it" factor to look for in founders

Happy Friday DVC!

Hope everyone had a great week! And a high five to the 7 new members! ✋ 

Whether you're a seasoned investor or just starting out, our goal is to provide valuable insights in Venture that help you make informed decisions and achieve outsized returns. Today, we’re going to focus on evaluating a startup team.

Table of Contents

• Venture Investing: Assessing the Team

• Team Analysis Matrix 🧬

• The Founder “It” Factor 🤔

• DVC Deal Review

• DVC Portfolio Updates

Venture Investing: Assessing the Team

By: Gerry Hays

For the past several weeks, we’ve discussed the three pillars of successful venture investing: 1) A Fertile mindset; 2) A Sound Strategy; and 3) Disciplined Execution.

During the execution phase of building your portfolio, you will be assessing the credibility of each investing opportunity to determine whether you’re investing in a deal (or not). Specifically, we concentrate on five broad areas:

1. Business Model

2. Team

3. Competitive Advantage

4. Market

5. Alignment

Last week, we discussed the Business Model. Today, we’re looking at the team.

Team Analysis Matrix 🧬 

I don’t believe there’s any investor out there who doesn’t think this is the most important consideration when deciding whether to invest. But what should you really be looking for in a team?

Well, the “safe” answer (before I get into the one “it” factor) is that it depends on the stage you’re investing in. Obviously, during the pre-seed stage, you might be analyzing one or two founders. During the later stages (i.e. Series B), you’re assessing the capacity of a fully-burdened, professional management team.

You can’t apply the same criteria across the board, so here’s the QAI (Qualified Accredited Investor, www.beQAI.com) summary of criteria for what you should be looking for at each stage:

Ultimately, startup success comes down to two factors: 1) product and 2) revenue. Early teams need to excel at both. As the startup evolves, the founder(s) must continue to focus on these core functions while beginning to introduce structured sales, strategy, marketing, finance, accounting, management, and human resources into the mix to scale operations. Therefore, assuming capital is available, the founder(s) must understand that their ability to grow the company depends on their capacity to expand their teams and delegate authority and responsibility across multiple people. As an investor, depending on the stage, you're assessing how well the founder(s) are managing this.

The Founder “It” Factor 🤔 

The analysis above goes beyond the founder and really looks at the complementary skills and abilities of the teams at different stages. But ultimately, at least through the Series A, as the founder goes, so goes the team. So, I still place significant weight on my assessment of the founder. For me, there's an "it" factor I'm looking for.

If you look around, you'll notice that many successful businesspeople aren't necessarily the smartest 🧠. Success in business isn't just about intelligence. The best founders are those who spot opportunities others miss and then take decisive action. Observers from the sidelines might attribute their success to luck 🍀 .

Yes, every successful venture needs a touch of serendipity to cross the chasm, so there's some truth to that. But it's not just about being smart or lucky. There’s something more. True change, both within ourselves and in the world, demands a quiet, unyielding drive.

I’m not talking about “professional drivers” obsessed with growth metrics and accountability measures. Yes, they can be successful, but in my opinion, the best drivers are those who are so relaxed that the people around them aren't even conscious of their drive and inner desire 😎 , which usually means their drive comes from deep within. This is the “it” factor I look for in a founder.

I’ve used this example before, but it’s worth restating for this argument. About a decade ago, I had lunch with a colleague who wanted to start a chocolate company because his wife had developed an allergic reaction to milk chocolate and despised dark chocolate. He wanted to create a dark chocolate that offered an experience more akin to milk chocolate without the milk. As a chemistry and biology major, this was within his wheelhouse, but what were the odds of a successful chocolate startup? It didn’t matter because it was clear to me that he had made an internal decision to “burn the ships” and devote the coming years to this endeavor, whether I invested or not.

Fast forward to today, and not only did the founder bring a superior dark chocolate experience to market, but in the process of trying to make a better chocolate, his company has been issued several technology patents around food enhancement and preservation. He’s since raised millions of dollars and is doing business with major food and beverage companies across the globe, helping them enhance the quality and shelf life of their products.

He has no social media presence to speak of. He doesn’t brag about how much he works or how mentally tough he is (i.e. hustle culture). He’s just quietly and methodically discovering and solving “hidden problems” in the food flavor and preservation space and finding talented people to help him scale. Again, as the founder goes, so goes the team.

In fact, the three best-performing startups in my portfolio all have a founder at the helm who has this “deep, quiet, and unrelenting” drive 👉️ the “it” factor.

Next week, we’ll tackle how to evaluate Competitive Advantages. And, if you have questions you’d like for us to answer, feel free to email them to [email protected] or post your thoughts on the newsletter!

DVC Deal Review

For DVC Premium Members, we will be posting our analysis of Handprint, currently listed on Wefunder next week!

DVC Portfolio Updates

Clear Earth Rovers (Deal #52) - We love watching Clean Earth Rovers work to eliminate man-made water pollution. Below is a before-and-after picture of their “Rover” in action!

Have a great weekend everyone!

Sincerely, Team Doriot