How to evaluate an early-stage team
How do you know if a team is the right one to address a specific problem?
Imagine you're considering writing a check into a company, but you're not sure if the team is the right one to solve this specific problem.
Here are a few ways to think about this:
Do they have domain experience?
Founders often start a company because they want to solve a problem they experienced at their previous job.
For example... a software engineer who worked at Facebook may have found that onboarding new developers took up a ton of her team's bandwidth.
So, she left Facebook and built a SaaS solution to solve this specific problem.
Here's why this is a good signal:
the founder knows exactly how her target customer feels
she knows many people (her former colleagues) who have this problem, and can tap them for customer discovery
she can contact her former employer and other peers in her industry to acquire early customers
Or, are they wild cards?
It's possible that the team you're evaluating has no domain experience in the problem they're solving.
So, you'll want to ask these two questions:
Why are you interested in this problem?
Why are you a good fit to solve it?
Oftentimes a founder started a company because someone they know was personally affected.
For example, Anja (a Hustle Fund portfolio company) was started by a founder whose brother was diagnosed with a rare disease.
She started Anja to help other families avoid the tragedy that she and her family faced many years ago.
But it's possible the founders have no emotional tie to the problem they're solving. If not, a good signal is if they've done a ton of research into the issue.
If they have, their learnings and customer discovery might make up for the lack of domain expertise.
Are you just looking at pedigree?
Deciding whether or not to invest in a company simply because the founder attended a certain school or worked at a specific company isn't inherently wrong...
But it shouldn't be the only thing you look at.
And it also shouldn't overshadow any big concerns you have about the company.
Because the hardest part about scaling a typical software business is not building the technology.
It's acquiring customers.
And going to a fancy school or working at an impressive company for a few years doesn't automatically make you knowledgeable about the customers or the domain of a new venture.
So if you're thinking of investing in a sales automation platform, don't ask where the CTO went to grad school. Instead...
Ask what they've learned from their customer discovery.
Ask how they're going to get their first customers.
Ask what channels they think might help them scale customer acquisition in the future.
An exception to this rule:
Investing in deep tech companies.
Customer acquisition does matter... but the ability to develop technology that very few people in the world can build is even more important in these cases.
If you're considering investing in a company that relies on extremely complicated technology, you'll want to make sure the team can actually build the tech before writing a check.
One way to do this is to ask to see an MVP (minimum viable product) before investing.
Another way to do this is to ask about past complex and related projects the team has built before — even if it was in a completely different field.
In some cases, doing research at a top institution for many years may be an edge when it comes to building the product.