Talking with founders helps investors understand the future of a company. The founders have a vision for what they want to do and their ability to clearly articulate this vision to others is a key determinant of their success.
However, when founders speak with investors, they can be tempted to paint an overly optimistic view of the future in order to increase their chance of getting funded. If investors base their investment decision only on discussions with the founders, this is unlikely to be a fully accurate representation.
There are two reasons for this. The first is that the founders may be fooling themselves. If an investor believes that the founders believe in their vision but aren’t aware of the sacrifices that they will need to make in order to realize it, they shouldn’t invest. Ideals are peaceful, history is violent, and people often misjudge the extent of the violence which they will need to go through to reach their ideals.
The second reason why talking with founders isn’t enough to give investors a comprehensive picture of the company’s future is because founders rely on their employees in order to execute their vision. As a result, it’s not enough for founders to believe in what they’re doing. Employees need to feel the same way. The employees also need to feel good in their work environment so that they have the motivation to perform to the best of their abilities.
This is why it’s very important for investors to complement their discussions with founders by talking with the company’s employees. Do the employees share the founder’s vision? This doesn’t mean that they need to agree with every part of the strategy, but they do need to have enough respect for the founder’s intellect and drive to carry out their part of the mission. Do the employees enjoy working at the company? This doesn’t mean that they won’t experience stress and moments of anger, but they need to place enough value in their teammates to put forth the group effort necessary to overcome these short-term challenges.
The founders of most startups really believe in what they’re doing. But this isn’t always the case for employees. Understanding if this is the case, and if not why this divergence exists, can tell investors a lot about a startup’s eventual chance of success.
Also published on Medium.