Assessing the team

Founder-market fit, and what a track record is worth

At this stage the company is its founders. The product will change, the market will be re-read and the plan will be rewritten, and the same two or three people will do all of it with your money. Once the team passes the initial screen, examine the evidence in more detail.

Start with the one measured finding. In Gompers, Kovner, Lerner and Scharfstein’s study of 8,753 founders of United States venture-backed companies, 1986 to 2000, with outcomes followed to 2007 and success defined as going public or filing to, a founder whose previous company had succeeded did so again 30 per cent of the time.

A first-time founder succeeded 21 per cent of the time. A founder whose previous company had failed succeeded 22 per cent of the time.

A prior success is evidence worth considering: the gap between 30 and 21 is substantial when most investments lose money. Prior failure, by contrast, tells you little either way. A founder may have learned a great deal from the failed company, but these data do not measure that learning.

These are American, venture-backed figures from a period with a deeper exit market than Norway has, so take them as the shape of the effect. Do not pay for a failed venture as if it were experience, and do not discount for it either; weigh the founder on what you can see now.

Knowing the market from the inside

What you can see now starts with whether the founders know the industry, the customer and the problem from the inside. Ask where they first met the problem.

A founder who has sold into this market, bought from it or run a function in it can name the buyer, the budget line and the current workaround without looking at a slide.

Ask what surprised them in the first ten customer conversations. Someone who has done the conversations has a specific answer, and someone who has not will give you a general one.

Then test the explanation. Ask them to explain the business as they would to a customer, then to a competitor’s product manager, then to their own accountant. The explanation should survive each audience and the follow-up questions.

Notice whether the founder changes terminology under questioning or falls back on the deck instead of explaining. Record those points for diligence; they suggest the pitch may overstate the depth of understanding.

Founders entering from outside the industry carry a different burden of proof. Industry experience has to show as customer access and a realistic view of how the market buys.

First-principles entry has to show as unusually fast learning: customer interviews done in volume, a product changed on what they heard, and an honest account of what the insiders know that they do not yet.

Completeness and the hiring plan

Before assessing the founders, write down the skills the business needs in the next eighteen months: selling to this buyer, building the product, managing finances, and any regulatory, clinical or industrial expertise the sector demands. Then match each against the founders, and ask the founders to do the same exercise in front of you.

Gaps are normal at this stage, and the useful signal is whether the founders see them. A team that names its own missing competence, has a plan to hire it and intends to hire above its own level has done the work you are doing.

A team that describes itself as complete at three people either has not looked or does not want to say.

Ask who the first two hires are, what they will cost, and why those two. The answer shows whether the hiring plan follows from the gaps or from the size of the round.

Advisers and board members count only where they show up. Ask what the adviser did last month and what the board (styret) decided at its last meeting.

A board member whose introduction led to the first customer has contributed something concrete. Ask for similar evidence behind each name or logo on the team slide.

Commitment and alignment

Ask whether the founders work full-time and, if not, when they will. Establish how much money they have invested and salary they have forgone, then ask how they agreed the equity split.

Full-time status is the cheapest signal and the most often fudged. A founder with a job to go back to holds an option the other founders do not, and a founder drawing a market salary from a seed round is being paid to run an experiment with your money.

Neither is disqualifying on its own. Both belong in the written view, together with the date on which the founder says each situation changes and what you will do if it does not.

The equity split tells you how the founders value each other. An even split decided in an evening can be fine. A split nobody will explain is a dispute waiting for a trigger, and shares held by someone who no longer works in the company are a question for the reference calls.

Founder agreements and vesting are read here as commitment signals and verified later. Time-based vesting of founder shares with good-leaver and bad-leaver pricing is documented Norwegian early-stage practice. The mechanics are a term-sheet matter and the cap table is verified formally in due diligence (selskapsgjennomgang).

At this stage you are testing whether the founders accept the principle that a founder who leaves in year one does not keep a third of the company. A founder who resists vesting before anyone has proposed terms has told you how they see the next five years.

Coachability and self-awareness

Challenge something in the first meeting and watch what happens. Pick a real weakness, state it plainly and see whether the founder engages with it, deflects it or defends everything. The founder you want takes the point, says what they have already tried and what they would do differently, and pushes back where they have evidence.

Ask them to name the three biggest obstacles to the plan, and the weakest part of the team. The realism of that answer is a criterion in its own right.

A founder who says the biggest risk is “execution” has not thought about it. A founder who names a specific dependency, a hiring gap or a customer they cannot afford to lose has.

To distinguish conviction from an unwillingness to listen, present a fact that contradicts the plan and see whether the founder adjusts their view.

A founder who updates on evidence and still holds the vision is what you are looking for. A founder with an answer for everything, including the evidence, will have an answer for the board when the numbers miss.

Founder dynamics

Ask how long the founders have known each other and in what setting. Working together under pressure before, in a job or an earlier project, tells you more than a long friendship. Then ask how they disagree. Get an example of a real disagreement, who decided, and how the one who lost the argument behaved afterwards.

Watch the meeting itself. Who answers which questions, whether one founder corrects another and how the correction lands, whether the chief executive lets the technical founder answer technical questions. A team where one person answers everything is either a one-founder company with passengers or a team that has not agreed who decides what.

Follow up on unresolved disagreements about equity or roles that emerge in the meeting. Also note any founder who cannot explain what they would do if a co-founder left.

Both go on the list for the reference calls, and both are reasons to make the call to a departed co-founder yourself.

Reference calls that tell you something

Reference calls are the one part of team assessment that produces evidence from outside the room. Seraf’s reference-checking guide sets out a structure that works at angel scale: four kinds of call, two or three of each, about thirty minutes apiece.

The four are references the founders gave you, customers the founders gave you, references you found through your own network, and potential customers you found yourself. Eight to twelve conversations is a lot for one angel, so in a syndicate split them and share the notes.

Timing follows the same guide. Calls to customers strain a young company’s relationships, so make them in the second half of the process, when you are fairly sure you are going forward. Calls to former colleagues and earlier investors can come earlier and cost the company nothing.

• Former managers and colleagues, for how the founder works when things go wrong.
• Customers, for whether the product is a critical need, a useful utility or a nice-to-have, which is the distinction Seraf’s customer questionnaire exists to draw.
• Earlier investors, for whether reporting happened and whether the founder took advice.
• Co-founders who left, for why. This is the call founders least want you to make, and the one most worth making.

Make the calls with the founder’s knowledge. Anything beyond conversation and the public registers, a credit check for instance, waits for due diligence, where the legal basis for it is checked.

Use consistent questions so you can distinguish specific evidence from general reassurance. Keep one guide for management references and one for customers, so the notes from different callers can be compared.

A glowing reference from a name the founder supplied tells you the founder can choose references. Weight the calls you sourced yourself, and listen for what is left out.

A guarded answer deserves follow-up. Ask whether a refusal reflects the person’s experience or a policy that limits references, then seek independent corroboration. Record unanswered or policy-limited calls as gaps. Ask each reference for the next name, and stop when the calls start to repeat.

Tell the founders you will be making calls they did not arrange. It is standard practice, and a founder who objects to it has told you something. Keep the number of calls proportionate to the investment, and spend the ones you make on the calls the founder did not arrange.

Reaching a view on the team

Write the view down before the data room opens. One paragraph per dimension, the evidence that settled it, and what remains unresolved. Then sort each finding.

• A blocker ends the case. A founder who will not work with angels, a co-founder dispute that is live and unresolved, a track record the references contradict, or a founder who cannot take a challenge. Decline it, and say why.
• A condition is a gap the round can close. A commercial hire before the money moves, a founder going full-time on completion, vesting accepted in the term sheet. Write it into the term sheet and let due diligence verify it.
• A coaching plan is a weakness the founders see and you can help with. Ask yourself whether you can, given your time and your expertise, and decline the case if the honest answer is no.

Use the written assessment to decide how much verification the case needs and where to focus diligence. With a strong team and a weak market assessment, focus the work on the market. A weak team with a strong product is a decline, because the company will depend on the team’s ability to adapt as the product and market develop.