What makes an investment promising, from the perspective of a venture capitalist? As any VC will tell you, it's not so much the idea being invested in; rather, it’s the team behind the idea, and most specifically, the founder.

A Smart Bet

VC investment is very much like gambling. Even having the best team and idea does not guarantee any level of success. That’s why many VCs spread their bets across a number of different companies; the way the math works out, you only need one outsized win to more than make up for all of your losses (or mediocre wins). But how do you optimize your chances of getting that outsized win? How do you know what to look for in a startup?

Well, there are many immeasurable factors that go into the success of a company, and to be honest, luck is probably one of the most important. Other factors, however, are much more concrete. And over the years, I’ve found that finding businesses with great founders significantly increases my odds of success.

Invested Investing

I’ve done a lot of venture capital investing in startups, both in the very early seed stage, and in the later stages. Some of my investments have included:

Something unique I bring to the table as a VC is that I’ve been a three-time founder myself. My first startup, which failed, was called Offyx: it was one of the first B2B SaaS businesses. This was back before the term “SaaS'' even existed; in those days, we called it “utilizing software.” We also built the first app store, before that term existed as well. In 2000, I raised just over two million for Offyx. It failed when the dot-com bubble burst, like many other tech companies that were just too early for their time, despite having functional and viable products.

After that, I bootstrapped two more startups over the next 17 or so years: JoonBug and EZ Texting. I spent almost a decade building each business, so I understand intimately what it’s like to be a founder, and the challenges founders face at every stage of the company’s trajectory.

Finding Great Founders

You might think I’d be looking for founders that are just like me, but that’s not the case at all. What I’m really looking for are founders that are better than I ever was. Because while I was willing to become strong in skills outside my comfort zone (even if I didn’t like them very much), there were still a lot of things that I was never great at. Those things included finding the right hires, seeing the next step in technology, and even understanding fundamental accounting and KPIs.

So when I’m deciding whether or not to invest in a company, there are a few big factors I’m looking for, specifically in the founder.

1. Back to the Future

Founders should be thinking and living in the future, not looking for gaps in the current market. I want to work with someone who’s thinking big, and for me, thinking big doesn’t mean just using the traditional means to make some new things.

For example, a founder might figure out that there’s no great software solution out there for facilitating Lost and Found department processes. And since many big arenas, libraries, stadiums, etcetera have Lost and Found departments that might need this software, the founder gets to work building the product and startup in a traditional manner.

That’s fine, but while there might be a market for a better, faster, more user-friendly lost and found software, it’s not a project that I’m interested in. I’d rather be talking to founders who are coming up with solutions like Tile Trackers, because in the future there should be no need for lost and found software. With technology like Tile Trackers, people can and will simply find their misplaced stuff using their smartphones.

2. Liar, Liar, Pants on Fire

Founders have to believe in themselves, their team, and their idea so much that they are essentially... constantly lying to themselves. After all, they already know that they only have a slim chance of becoming successful. That’s just a fact for any startup. But if they can’t “lie” to themselves, convincing themselves of the future success of their company, then how are they going to convince investors, employees and potential customers?

Being a great (and likable) liar is essential to being a great founder. These founders make grandiose claims of what their product can do, the size of their market, the partnerships they are going to make and the sales they’re going to have. At the end of the day, it’s all conjecture, of course. But a beautifully told story, delivered with conviction, can make a believer out of even the harshest skeptics, and bring that “lie” to one step closer to becoming truth.

3. Broken Brain

Because a good founder is living and thinking in the future, he or she is naturally thinking wrongly about most things in the context of the present. So, counter-intuitively, the more outrageous a founder may sound, the more likely it is that they’re on to something.

Perhaps it's the way they decide to price their product that is counter to the norm. For example, everyone thought the freemium pricing model was crazy when it first appeared. Now it’s everywhere, and very successful.

Or maybe their groundbreaking idea is reliant on technology that doesn’t exist yet, as when Google created Maps, even before smartphones were around to leverage the data.

Or perhaps the idea is so disruptive that it would be a logistical and bureaucratic nightmare for it to actually be approved for use— think Tesla’s electric cars, or battery powered home generators.

The list of possibilities can go on but one thing stays the same: they all seem crazy, hard, and wrong—when looked at through the lens of a normal mindset in the current moment.

4. MacGyver’s Great-Grandkid

Founders need to have the MacGyver gene. They have to be able to get themselves out of tough situations through means that are not apparent to most people. That means that, in many ways, a founder has to be a jack-of-all-trades (or at least willing to become one). They have to think ten steps ahead, and anticipate all the stuff that could possibly go wrong—or right. They have to integrate and resolve multi-disciplinary, and often conflicting, information.

Good founders aren’t afraid of pressure and difficult situations. They crave the challenge, and even do their best work when the pressure is on. In fact, the greater the pressure, the better they perform! Look at Elon Musk, for example: he sometimes sleeps in his factories to make sure that they output what was promised!

These kinds of founders are willing to get their hands dirty. They’ll fight, kick, scream, and most of all not give up until they win. They are anti-fragile, and can improvise through any situation to get the resources they need and move on to the next challenge.

5. Bah Humbug!

A lot of investors will only invest with founders that they “like and get along with.” But that’s not my philosophy. This might sound counter-productive, but most great founders are disagreeable. They won’t tell you what you want to hear. They won’t pretend to agree with you when they think you’re wrong, or when you tell them that they’re wrong. A great founder is someone who’s seeking the truth, and usually the truth isn’t agreeable to most people—nor is it within their grasp.

Good founders can’t be taken off course. They won’t change directions just to be liked. They don’t care who likes them or who doesn't like them. They only care about one thing: making their vision a reality. If you aren’t on board, then you are irrelevant, and nobody cares what an irrelevant person thinks or likes.

Winning and leadership have a price, and in general these kinds of founders are not “nice people.” But I’m not looking for founders I can be best friends with, or ass-kissers who tell me what I want to hear just so they can get a check. I want someone who will challenge me, someone who has the integrity to walk away instead of compromising their beliefs.

Founders On Fleek