6 norms VCs expect teams to follow

Should we all be full time?

Should everyone in the team have equity?

Is it a good idea for two founders to be Co-CEOs?

If you were to ask 100 VCs these questions, you would have a very high chance of getting the same answers from each of them. On the other hand, if you did the same exercise with 100 founders, you'd receive a much more diverse set of responses.

Why do all the VCs give identical answers? Because they spend too much time talking to each other, reading the same blog posts and listening to the same four podcasts.

Professional investors have a ton of norms they expect ‘good’ startups to follow. Unfortunately for founders, VC treat these norms like religious beliefs. This means that, if they meet a startup that breaks these ‘rules’, they will often reject the company regardless of the other facts about it.

Most founders are completely clueless about these norms because they have better things to do than binge listen to VC podcasts. Unfortunately, this means that every year thousands of startups destroy their chances of fundraising without even realising what they did wrong.

One area where VCs have a ton of unwritten rules, is around how startup teams are run and organised. This results in a lot of founders accidentally committing pitch suicide when they talk about their team. So, to help you avoid this fate, the rest of this lesson will go through the six most important ‘norms’ VC’s expect teams to follow.

Check if you break them and, if you do, figure out how to justify or fix it before you start fundraising. Let’s begin.

Norm #1 → Key people need to be full time

Creating a billion dollar business is extremely difficult. Every VC has seen many smart, hard working, teams with great ideas fail despite pulling 80+ hour weeks. Therefore, when they hearfounders tell them that they don’t plan to work on their startup full time, they start to seriously doubt whether these people have what it takes to make it. And then they hit the rejection button.

Their logic – if you won't even commit all of your time to your startup, why should they commit millions of dollars to helping you build it.

That being said, this doesn’t mean your founding team needs to already be full time during your fundraise. If you’re very early, VCs will recognize that you may not be able to quit your jobs before receiving funding. However, they will expect the team to go all in once the round is raised. Saying that you plan to continue running your consultancy or stay in academia after the round is fundraising suicide.

So, if you do find yourself raising in this scenario, make it crystal clear to VCs that you and your co-founders will go full time as soon as the money lands in the bank.

Norm #2 → Key people need to have equity

In an earlier lesson, we discussed how important it is to show that you have all the skills in place that your startup needs. As we covered in that lesson, you typically show that you have these skills by talking about the people in your team who possess them. VCs will want to know that these people are adequately incentivised to stick around, because they know that without them your progress will grind to a halt.

In the startup world, employees (especially key employees) are incentivised for the long term with equity. As a result, VCs will expect every founder and anyone important enough to be mentioned during your pitch, to have equity in the business (either through shares or options). The more important that person is, the more equity they need.

If VCs find out key people in your team don’t have equity and you have no plans of granting them any, that becomes a massive red flag. If you're stingy with equity, they won’t believe that you’ll be able to retain the talent you need to build a big business.

Norm #3 → Roles and responsibilities should be clearly divided

Investors will often ask you which co-founder is doing what. If your answer is that you’re all Co-CEOs or that you’re not sure yet, that’s a red flag. It’s a signal that there might be conflict or confusion in the long term.

Investors hate both of these:

• Conflict often leads to founder breakups which kill a lot of startups
• Confusion slows everything down… and slowness kills startups too

Thankfully, it’s extremely easy to avoid breaking this norm. Simply present VCs with a clear and logical division of your team's roles – one where founder responsibilities don’t overlap. Even if reality is a little messier, you don’t need to expose these messy parts when you pitch.