Why do VCs care so much about your team?

When it comes to assessing startups, Team is one of the fundamental things VCs base their decisions on. Team features in conversations between VCs about deals and is a talking point on about 24 trillion VC podcasts. Alongside criteria like Market Size, Product and Traction, VCs are obsessed with it.

However, Team isn’t the same as the other criteria. A VC will never invest in a business solely because it’s in a huge market or has a great product, however, they will sometimes invest exclusively because of a startup’s team. And this happens often enough that there’s a name for this type of deal – a ‘team bet’.

VCs giving the WeWork founder $350m for a company with no traction – that was a team bet
VCs giving Elon Musk $6bn for his new AI startup – another team bet
VCs handing any person who’s ever worked at OpenAI $100m for their next crappy idea – more team bets
The list goes on and on...

Investors' obsession with Team has consequences for your fundraise. It means that one of the most effective things you can do to increase your chances of getting money is to convince VCs that your team is amazing. By the end of this module, you’ll be able to do just that. To kick things off, we’ll start by explaining why VCs care about your team so damn much.

Why do VCs care so much about your team?

To help you see just how important Team is to investors, I’m going to show you what my life was like when I was a VC:

Imagine that you're a partner at an early stage venture firm. Other than helping the startups you’ve already funded, your main responsibility is to find new companies to invest in. To make this happen, you’re constantly talking to founders. Every week you meet about ten new startups – in a year you’ll talk to over 500 of them.

You’re doing all the right things and, as a result, are meeting tons of really interesting companies. But there’s just one problem – your fund makes eight deals a year and the remaining six deals are reserved for the three other partners. This means that you only get to invest in two companies.

How would you pick your lucky two?

Cutting your list from 500 to 50 is actually quite easy. You filter out all the obvious bad fits, the companies where you think the market size is too small, you don’t believe in the product, or you think the traction sucks.

But this doesn't completely solve your problem. You still have 50 companies which look promising. In theory you could pick any of them, but you don’t live in a world of theory – you have to make a choice.

You decide that you’re going to invest in the two that are most likely to succeed. But this just creates a new problem for you… How the hell are you supposed to know whether a startup is likely to succeed or not?!

The answer… You do what I used to do when I was a VC. You look carefully at each startups’ traction and team for evidence that they’re going to win.

In theory, Traction is the ultimate signal, because what’s more likely to work than something that’s already working. However, in practice, traction isn’t as helpful as you’d expect because none of the startups you're looking at have been operating long enough for their data to be a strong signal. You’ve seen way too many companies grow to $100k ARR and get stuck to pull the trigger based on three months of numbers.

So you decide that Team has to do the heavy lifting. Your logic? Great companies are made by great people. Therefore, even though Traction doesn’t provide strong enough evidence – Team can give you the signal you’re looking for. The result, you spend the bulk of your career looking lovingly into the eyes of every founder that pitches you, trying to figure out whether they’re a winner or not. The two companies you choose this year will have the ‘best’ teams.

Congratulations! You’ve just reached the same conclusion as 99% of early stage investors.

VCs believe that ideas are cheap. Their job literally involves listening to 100s of people tell them how they’re going to change the world and then watching sadly as 99% of them fail to even change a lightbulb. Coming up with an idea is easy, execution is the hard part. As a result, investors put way more weight on who is telling them an idea, than the idea itself. Someone saying that they’re going to build a billion dollar company – which is basically what every startup is saying – is by default nonsense. It only stops being nonsense to VCs if they believe the person making the claim can deliver.

And this is why early stage investors are so team-obsessed that you regularly see tweets like this:

Quote from Harry Stebbings - "Whenever I invest in a company, I ask myself a simple question: 'How often do we meet founders of this calibre and quality?". If the answer is less than every 6 months, then as a seed investor, you should always write the check.

So VCs are obsessed with your team… Now what?

Here’s the twist. If you're fundraising, knowing that VCs are obsessed with teams isn't enough to get you a term sheet. The real million dollar question for you is – How do VCs actually assess teams? If you understand this, you can design your fundraising materials and, more importantly, what you say to investors in meetings to maximise your chances of raising money.

In this module we’re going to help you do just that. Across 16 free lessons we’re going to:

The premium content in this module builds on the lessons above by taking the theory and frameworks in them and providing you with step-by-step guides to applying them in meetings with VCs. We do this by using footage of real founders pitching to show you what great actually sounds like. This makes it easier to apply our insights to your own startup. To get full access to all of our premium content you can upgrade here.

Anyway, it’s now time for us to move on. To kick off our journey, we’ll start with the first and second items from our list above. In the next two lessons we're going to explain the core criteria VCs use to judge teams and, more importantly, how to convince investors that you meet these criteria.