As a VC at Episode 1 and co-host of Riding Unicorns, I’ve had the privilege of meeting over 25 unicorn founders as well as around 75 ‘soonicorn’ founders. Along the way, I’ve learnt about building great company culture, hiring world-class talent, launching in new geographies and raising hundreds of millions from VCs. I’ve also learned a huge amount about the founders themselves.
I recently sat down and went through all my notes to see what all these remarkable people had in common.
At Episode 1, we invest in startups at Pre-Seed and Seed, so it’s important that we’re able to identify potential unicorn founders early on in their journey. I find the experience of speaking to unicorn founders invaluable when evaluating early-stage founders.
It’s important to recognise that there are very few, if any, founders who have all these traits and founders really do come in all shapes and sizes. Similarly, some of these traits become more or less useful as the company grows.
We can use these founder traits to create signals to help decide whether or not to invest in a startup. Although investors do their best, these signals can be very noisy and it’s incredibly hard to pick the right founders every time.
Picking founders is also fraught with biases including gender and ethnicity biases, but also biases like availability/recency biases.
An extreme example of recency bias would be thinking that because the last unicorn founder I spoke to exhibited trait X, a founder I’m speaking to currently, who also exhibits trait X, must also be capable of being a unicorn CEO.
This might seem obvious but is a very human mistake to make — intellectual integrity and honesty is needed to ensure you aren’t viewing founder traits through a biased lens.
A big challenge for investors is building a true picture of a founder in the few hours we spend with them before making an investment decision.
It’s impossible to read founders correctly every time — investors have biases and founders don’t always do a good job of representing themselves in a meeting — hence why it’s such a noisy signal.
For example, a founder might be hugely ambitious but also humble. In this case, the founder needs to understand that many investors are likely to value ambition over humility (within reason), so they need to let their ambition shine through.
To get the truest possible picture of a founder, investors need to create a safe space for them and need to ask the right questions in the right way. Doing this will make the conversation more productive and more enjoyable.
There’s a reason that ex-journalists make great VCs (Michael Moritz from Sequoia, but many others too). They ask the right questions in the right way. They get to the truth of the matter. And that’s important when you need to discover if they have any of these desirable founder traits.
Let’s take a question that a typical VC might ask: ‘What’s the weakest part of your business?’.
This question seems a little close to an attack and might put the founder on the spot, producing a defensive answer.
Another way to ask that question might be ‘What keeps you up at night?’. This is more focussed towards the individual, the founder, making it easier for them to speak from the heart and tell the investor how they feel. This is likely to be the truth, and again, the truth is what we need when discovering founder traits.
Our experience at Episode 1 is that we get better answers with the latter type of question. This softer, more personal method of questioning produces more honest and open conversations.
Good question-askers bring out the best in founders, and by doing that they have a better chance of backing the best founders.