Looking for signals outside of the team
When she first started investing, Elizabeth Yin believed that the founding team was all that mattered. The market might be down, or there may be a ton of competitors… but if the founding team was stellar, that might be enough.
But then something changed. After years of investing as an angel and as a VC, Elizabeth recognizes that there are other critical factors to consider before writing a check.
Like: the idea
Let’s be clear: the team does matter. But after 700+ investments, Elizabeth believes that a great idea could be more impactful than a great team. This is because of product / market pull.
Consider what happened with Twitter in 2023. Is the new CEO the best possible leader for this company? Some would say “no”. But customers love the product. And if customers love the product, then they’ll continue to use it. And if a business is easily acquiring and retaining users, growth is guaranteed.
Do you know who absolutely loves strong market pull? Investors. Investors see brands with strong market pull, and pour money into those companies. That gives the team more capital to work with, so they can afford to make blunders.
On the flip side…
Let’s say you have a superstar founder, but her idea will be tough to execute. She may succeed in a massive way. But before (or if) that happens, she’ll have to push big boulders up steep mountains. And a lot can go wrong along the way.
That founder will likely have a hard time raising money… and so unlike her peers who have strong market pull and tons of investors, she doesn’t have wiggle room to make big blunders and recover from them. One misstep could drain her resources.
So what’s the takeaway?
When she first started out as an investor, Elizabeth believed that 99% of what made a great business was having a great team. Seven years later, her evaluation process has changed. And while there are certainly times she said “no” where she later wished she said “yes”, overall this evolution has helped her make smarter bets.
If you’re new to investing, consider writing down your evaluation process today. What elements of a startup do you consider most important? In a few years, revisit that list. What’s changed?