complicated concepts

Identifying a startup's "must have"

If you talk to an early stage VC, almost all of them will tell you that the thing they care about most is the team. This makes sense, right?

I mean, most early-stage startups have little-to-no revenue, traction, users, etc. So many investors look at the team to determine likelihood of success.

But saying “I care about the team” doesn’t mean the same thing to everyone. Some investors consider a “great team” to be founders with:

  1. domain expertise (eg: experience with this exact market or industry)
  2. pedigree (eg: experience at a big company, degree from a fancy school)

My team at Hustle Fund thinks about this a little differently. Below I share how we think about team, and some actual examples of teams we’ve invested in (and why).

Let’s dive in.

How we evaluate companies in general

Hustle Fund looks at 5 different categories when evaluating a new startup:

  1. team
  2. problem
  3. solution
  4. market
  5. traction

We rank the startup in each of these categories, and use that framework to decide whether or not to invest.

🤓 I’m planning to do a deep dive into each of these 5 pillars over the next few months. Stay tuned.

We don’t expect any startup to knock it out of the park in all 5 categories. At the early-stage level, that’s not realistic. But they do need to score high on the thing that matters most to the (probable) success of the company. So if the company is in a super crowded space, we want to see a product that is highly differentiated, or that they’re targeting an underserved market. If the company is trying to solve an incredibly challenging problem, we want to see that the team is uniquely positioned to address that problem.

Make sense?

Ok, let’s talk about how this translates to the team.

How we evaluate teams in particular

The team is one of the pillars that almost ALWAYS matters when we evaluate early-stage companies. But the way in which the team matters changes from company to company. So while some VCs might ask themselves: “Does this person have a background in the thing they’re building now?” we ask: “What is the one thing this team needs to succeed... and does the founder bring that to the table?”

That one thing will change dramatically if the company is (say) a dating app versus a medical insurance platform. Since the online dating space is already overcrowded, a startup in this space will need to go after a new market in order to gain traction.

So we would want to see a founder who is already immersed in that market. Maybe it’s a dating app for veterinarians. A founder who used to be a vet will have deep connections in that market, and thus will be able to get early customers more easily than an outsider.

Now let’s imagine a startup that’s building a medical insurance platform. This industry is highly regulated. Different areas have different laws, and those laws change all the time. In this case, the team’s knowledge and experience in the insurance world is a must. Most customers won’t buy insurance from someone who can’t help them navigate those complexities.

These are just theoretical examples, though. Let’s look at some real-life examples of companies we’ve invested in.*

*these are companies that someone from our team invested in personally or through the fund.

Examples of real teams we’ve invested in

First, there’s the direct-to-consumer jewelry company. For the last few years, D2C jewelry brands have popped up like gophers in the garden. They’re everywhere.

So why invest in this particular brand? Easy - the founder’s family had been in the jewelry industry for generations. The founder knew the business inside and out, and already had trusted suppliers to boot.

Then there was the Uber competitor. This founder needed to something BIG to set him apart from the competition. Luckily, he had it. This founder had a strong background in performance marketing. He didn’t need to play around with different marketing channels to find what worked. He was able to acquire customers quickly and profitably almost from day 1.

Finally, there’s the startup that white labels NFTs for luxury brands. What does this founder do to show that they’re the right team to win? Their opening slide explains their family has worked with luxury brands for decades. They know everyone at Gucci.

💎 In example one (the jewelry biz), the business would only work if the margins made sense. So the founder’s background in jewelry was a must-have.

🚗 In example two (the Uber-competitor), the business would only work if tons of customers were on the app. So the founder’s expertise with customer acquisition was a must-have.

🌈 In example three (NFTs), the business would only work if there were strong ties to the luxury brand world. So the founder’s pre-existing relationships were a must-have.

The takeaway

Many startups are run by capable, smart, determined founders. That doesn’t always mean the startup will survive. Asking yourself: “what is this company’s ‘must-have’?” could help you distinguish between the ones that probably won’t make it, and the ones that just might.

BTW: You know what’s a must-have if you want to get access to great dealflow? Relationships with other investors. Meet the best ones at Camp Hustle.