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Venture capital funding is a critical step for many founders looking to scale their startups. When asked “How do you decide to fund one company and not another?” Our team points to the Six Ts: theme, team, terrain, technology, traction and terms. In our Startup Growth Toolkit series, we explore the six Ts that founders should consider when growing their startup.
Our last blog post explored how entrepreneurs should prepare and present the theme – or the problem they are setting out to solve. In this post about raising capital and growing your business, we’ll dive into how to build and introduce your team.
The Ideal Number of Founders
When establishing a founding team structure, the main consideration for entrepreneurs should be the number of founders. From an investor’s perspective, the ideal number of founding team members is three. This is because founding and running a startup can be extremely stressful and, in most cases, too difficult to do without an internal sounding board. Two founders are better than one when it comes to decision-making, but the risk of disagreements about the direction of the business is high. With three, the team will have a nice variety of skills in leadership, strategic thinking and operations.
The Importance of Founding Team Dynamics in Venture Capital Consideration
Additionally, entrepreneurs should remember that as investors that fund early-stage businesses, we are really investing in the people themselves – you. The chemistry, relationships and spirit displayed by the team during a pitch is critical, as it can ultimately make or break the company. This translates into how you will build out the team beyond leadership roles, as well.
At Blumberg Capital, we value teams highly and know the significance of bringing the right people on board as the business starts to grow. For that reason, we support our venture capital portfolio company founders with HR and recruiting expertise to help them with resource planning, recruiting and retaining talent. HR strategy must go hand in hand with business strategy.
Establishing Your Startup Founding Team Credibility When Pitching to Investors
Once the founding team structure is determined, the most important thing during a pitch with investors is to establish credibility. You must prove why you are the right people to solve the problem that you have identified. In doing so, make sure to answer three key questions:
1. How did you meet and what are your backgrounds?
First and foremost, tell us how you met, your educational history and past work experiences. Do you all come from the startup world? Does anyone on the team have experience at a large enterprise? Do you come from a variety of different backgrounds? Based on these past experiences, explain each of the team members’ core skills.
For example, our portfolio company Trulioo has two founders, both of whom had previous startup experience. They went beyond just matching their hard skill sets, pushing for alignment across several key factors, including personality, conflict and learning style, life stage, goals, and time and financial commitment capabilities, among others. Having met in high school, they had plenty of time to ensure they were a strong fit as a founding team. When it came to our understanding of the team and how they would allocate positions within the business, they had a proven track record through their previous joint ventures.
After an initial introduction, detail the distribution of roles and the complementary nature of the team. Who will be the CEO? Who will handle sales and marketing? What about R&D, engineering and customer service? If there are holes in the team’s experience, be upfront about it. We know how important it is to develop a strong team, which is why we provide our entrepreneurs with training in various functions as part of our HR resources.
2. Where do you see the company in 3-5 years?
Next, detail where you see the business in 3-5 years and, again, why you are the right people to get it there. Tell us how you will adapt to challenges, take advantage of new opportunities and evolve with the ever-changing business landscape. As early stage venture capital investors, it’s crucial to understand how you will battle the odds to achieve your desired goals.
3. How do you envision the success of the company long-term?
Finally, describe your dreams for the business and why you are the best people in the world to solve it. Show us your drive to achieve and succeed.
At the same time, though, stay humble, modest and transparent. Be honest about what you don’t know and why you are seeking an investment. During the pitch, do your best to strike the delicate balance between proving you have the skills necessary while also explaining where and why you need help.
“The best ideas are worthless if you can’t execute,” says Sharona Mizrahi, recruiting & HR specialist at Blumberg Capital. “It’s important to be transparent about gaps that exist within your team and maximize investors’ support to help close them.”
The Importance of Trust Between Startup Founding Teams & Investors
In this business, trust is the ultimate currency and it starts from day one. Similarly to how investors need to develop trust with LPs, entrepreneurs must build trust with us and, vice versa, us with them. It’s a mutual responsibility and joint effort among all those involved. Transparency goes a long way.
To wrap up this post, Tanis Jorge, co-founder of unicorn Trulioo and founder & CEO of The Cofounder’s Hub, shares this advice:
The statistic is that 65% of businesses created by a partnership fail because of issues between the partners. My advice:
- Take the finding and vetting process of finding the right co-founder seriously
- Get as much in writing as possible to give you peace of mind should things go sideways
- Be intentional at building and maintaining a strong co-founder relationship
- Always remember you are on the same team, view your partners actions and words through that lens and you will mitigate the chances of failure.
This post is the latest in our Startup Growth Toolkit series that explores what founders need to successfully pitch their business to investors to secure venture capital and grow their startup. Stay tuned for the next part in our series, Technology.
For more on the role team plays in venture capital fundraising and growth, take a look at our other deep dives:
- How To Find the Right Co-Founder: Q&A with Tanis Jorge, co-founder of Trulioo and founder & CEO of The Cofounder’s Hub
- TechCrunch, TC Startup Battlefield master class with Blumberg Capital: Make the most of your investors’ expertise
- CTech, Unlocking the potential of artificial intelligence in HR for startups