Evaluating Early Stage Companies: Part 1 - Management
I evaluate early stage companies on 5 M’s: Management, Market, Metrics, Moat, and Meaningful Impact.
Today I am going to dive deep, or more aptly shallow, on evaluating Management, ie the founding team.
Lines not dots: Getting to know a founding team over multiple meetings and multiple months or quarters allows me to evaluate with greater precision and conviction.
Vision: Do the founders have a clear and concise vision for the future and how their company fits in that future and more importantly how their company will change the future for the better?
Missionary not mercenaries: The founding team must be intensely passionate about their mission, not the money that their successful mission will hopefully achieve. Mercenaries don’t usually have the stomach or the drive to get through the hard times, missionaries do.
Co-founder relationship: Assuming there is more than one co-founder, which I highly prefer, I look for founding teams that have a long history together, personally and/or professionally. In today’s founder speed-dating world, exceptions can be made, but the bar will be very high for founders who met recently.
Continuous learning: I look for teams and particularly CEOs that are passionate about self improvement and continuous learning. A simple way to test this is to ask the question “Do you have an executive coach?”. They either (a) already have one (b) plan to get one (c) can easily be convinced of the value (d) they don’t believe they need one (wrong answer).
Charisma: The founding team needs to be able to sell to customers, investors, and prospective hires (perhaps the most important in today’s world).
Focus: The founding team needs to demonstrate an ability to prioritize effectively and focus their limited resources on the most cha
Speed: How fast do they learn, iterate, ship code, etc.? When evaluating lines not dots, this is easy to evaluate.
Team-problem fit: Does the management team have deep expertise and / or a unique insight in the sector they are tackling?
Integrity: The hardest to diligence, but perhaps the most important. Evaluating lines not dots + probing questions on ethically challenging scenarios are critical for evaluating integrity.
My pre-seed investment in Tyba was largely based on the founding management team. I had hired Co-Founder and CEO Michael Baker, almost a decade earlier at Stem and he and the team have these qualities in spades. At both Stem and Cypress Creek, Michael built and ran critical internal software tools for solar and energy storage development, becoming intimately familiar with the pain points that renewable energy developers faced with said software tools. The team knew each other very well - Michael had previously worked with Co-Founder and COO Tom Thunell at Stem, and Michael was childhood friends with Co-Founder and CTO Tyler Nisonoff. Throughout the months getting to see them in action they demonstrated focus, speed, passion, charisma, integrity, and much more.
Thanks to Emergence Capital’s Joe Floyd for articulating the basic framework and Cantos’s Ian Rountree for additional inspiration on evaluating founders.