Domain expertise

3 traits VCs love in teams (1/3)

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In the previous part of the module we went through how to answer the main questions VCs ask when assessing teams.

If you present your startup in a way that addresses these questions well, you can convince VCs that you have a 10/10 team. However, it would be a lie to pretend that these are the only things investors look at when judging you.

There are other traits that VCs look for in teams. While they aren’t as important as what we’ve already covered, they do have the power to upgrade your team from average to excellent in a VC’s eyes. You might go from an 8/10 to a 10/10.

In the next few lessons, we’re going to talk about three traits that consistently make VCs more excited about teams. We’ll discuss why each of these traits excite investors so much and, more importantly, how you can use them to your advantage as you fundraise. The traits are:

We’ll finish this lesson by diving into the first of them. By the end you’ll know what domain expertise is, why it’s so important and how to convince VCs that your team has it.

Traits VCs love in teams: Domain expertise

Let’s do a thought experiment. Imagine that you’re a VC and you need to pick between two teams – ChefCo and BroCo. Both of our teams are building ‘ChatGPT for Chefs’ (because of course they are…). They have the same product idea, the same amount of traction, they’re even targeting the same parts of the market. There’s only one difference between them, one of the founders of ChefCo is a former chef and while none of the BroCo team has even seen a professional kitchen before. Which team are you going to back?

If you said ChefCo, you picked the right answer (perhaps you should consider a career in venture…). ChefCo is the winner because it has what VCs call domain expertise. Or, more specifically, their former-chef co-founder is a ‘domain expert’. Which brings us to the next question… What even is a domain expert?

What the hell is a domain expert?

Domain experts are people who understand a subject like the back of their hand. The best way to tell whether someone is one or not is by comparing them with the average person.

Imagine you took a random person off the street and asked them a bunch of questions about restaurant kitchens. What could you reasonably expect them to know? You wouldn’t be surprised if they were able to explain the difference between a waiter and a chef. However, you would never expect a randomer to be able to explain the distinctions between prep-cooks, line-cooks and sous-chefs and you would be absolutely shocked if they started breaking down the intricacies of each role.

On the other hand, if you took the ex-chef from our earlier example, you would expect her to be able to answer insanely detailed questions about restaurant kitchens. Questions like:

How much do restaurants spend on raw ingredients each week?
What types of dishes are the most time consuming to prepare?
What is the most important piece of equipment other than the oven?

Asked these questions, a random person would crumble. Our chef, however, would have no problem. She has deep knowledge (expertise) about restaurant kitchens (her domain). Knowledge that can’t be matched by a random person in the street or even a couple of hours on ChatGPT or Wikipedia. She is a domain expert.

Before we move on to discussing why VCs love backing teams with these experts so much, I want to make it clear that domain expertise isn’t just limited to the professional world. Yes you can be an expert in an industry or a profession, but expertise in academic areas like astrophysics or even things like TikTok creation are just as valid as long as they’re relevant to your startup.

Why do VCs love domain experts so much?

VCs absolutely adore investing in teams that include people who are experts in the industry / sector that their startup is targeting. Why? Because they believe that this type of expertise makes startups more likely to succeed. VCs believe that teams working in areas they are experts in:

Are more likely to be solving a problem that other people actually care about
Are more likely to develop a product that their users love
Are more likely to successfully sell to customers
Have a better understanding of the size of the market and who to target initially

They believe that being a domain expert is like taking a test which you’ve already seen all the answers to. It’s life on easy mode.

On top of making VCs view your team more positively, domain expertise also makes your entire pitch sound more credible. Once VCs believe that you are the expert, they are way less likely to question what you say than they are to question a founder that they see as a tourist in an industry. Your whole pitch gets interpreted with a halo effect.

So, now you’re convinced that being seen as a domain expert rocks, let’s answer the million dollar question. How do we convince VCs that we’re domain experts?

How to convince VCs that you’re a domain expert

Convincing VCs that you have domain expertise is fairly easy. At its core there are only two steps.

You need the investor to know what domain is relevant to your startup’s success
You need to convince them that one or more of your team members has expert knowledge in that domain

The ChefCo example above works because it has both of these ingredients. Firstly, we learn that the startup is building software for chefs, so we know that the relevant domain is working as a chef or more broadly restaurants. Secondly, we are told that one of the founders used to be a chef – which allows us to assume that they have expert knowledge about these domains.

This example works because being an ex-chef screams “I am extremely knowledgeable about life in a restaurant kitchen”. However, there are many situations where listing off your team's previous job titles won’t adequately convey your expertise in the relevant area. In these scenarios, the fix for this isn’t to hope that investors just figure it out. The best thing to do is to spend a sentence or two explicitly telling VCs how and why cofounder Jemima is extremely knowledgeable about the domain in question when you’re introducing your team.

If cofounder Jemima gained knowledge of the restaurant industry because she was a research analyst that interviewed thousands of chefs, cooks and restaurant owners – tell VCs that. If her knowledge of the industry comes from the fact that she spent 13 years hanging out in her parents' restaurant after school – then tell investors that instead. The important thing isn’t the source of your team member’s domain knowledge, it's the fact that they have it. The only difference between this and the ChefCo example is that you need to make the argument explicitly.

Conclusion

Now that we’ve reached the end of the lesson let’s quickly recap what we’ve learnt. Firstly, we learnt that aside from their core criteria, there are three traits that make VCs look more favourably at teams – domain expertise, the ability to recruit top talent and scrappiness. And, secondly we learnt that the best way to show VCs that your team has domain expertise is to highlight the relevant parts of your team members’ backgrounds.

In the next lesson we're going to go beyond theory and show you how to use what you just learnt in actual meetings. In it we’ll show you real footage of a founder successfully positioning their team as domain experts and break down why it works so you can apply it to your own pitch.

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