venture capitalists

Why Venture Capitalists and Angel Investors Look at Teams, Not Ideas

Many would-be entrepreneurs spend hours, weeks and maybe even years working on the “perfect” idea to attract venture capital funding. They travel from coast to coast, setting up meetings and refining their idea. However, the reality, according to the Harvard Business Review, is that historically, less than 1 percent of U.S. companies have raised capital from venture capitalists.

With such stiff competition, it might seem natural for you to spend even more time focusing on fine-tuning your big idea. The reality, though, is that many venture capitalists don’t care that much about your idea. Instead, investors (including angel investors and venture capitalists) are far more likely to look at your management team.

Great ideas without execution go nowhere

Rather than focusing on your idea, there’s a good chance an investor will want to know more about you and your team. Even if you have an amazing idea, it won’t take off without the proper execution.

On the other hand, a mediocre idea has the potential to succeed with a competent management team determined to make it work. A venture capitalist or angel investor wants to know that you are a leader capable of follow-through.

If you are the type of person who gives up when things get tough, the startup is likely to fail, and an investor will lose their investment. Rather than risk that, many venture capitalists and angel investors will look at your track record of persistence and grit, rather than get hung up on your idea.


Related: 5 Tips for Making the Perfect Investor Pitch

Team members should have purpose

Investors will look at your management team to assess strengths and make sure members have complementary skill sets; this helps them to envision the team executing the idea to its fullest.

When looking at a team, venture capitalists hope to see different skills that can contribute to the overall success of the company. It’s not so much about the idea as it is about the ability of those working on the idea—whatever it may be.

Additionally, each person on your initial team should have a purpose. Your team should be composed of people who understand why they’re there, and what they contribute. Team members should also be passionate about what they do and willing to work hard to make the startup a success.

Build a team that is efficient and that works well together. When you balance abilities, and choose people dedicated to shared success, you are more likely to impress investors.


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Ideas come and go, but an agile team can pivot

Finally, many venture capitalists and angel investors like to focus on teams rather than ideas because a good team can pivot. If an idea doesn’t turn out to be such a great move after all and everything is hanging on the idea, that can lead to big losses.

Instead, investing in a good team can yield better returns down the road if that team is determined to find success—even if the idea changes. Twitter is one example of a successful pivot. Originally, the company was Odeo, and was focused on podcasts. However, Odeo realized that iTunes would quickly outstrip them. Odeo pivoted to micro-blogging and became Twitter.

Other famous startup pivots include Groupon, PayPal and Pinterest. We might never have heard of these companies if not for the fact that they changed direction after their original ideas didn’t pan out exactly as expected.

If you build a passionate, dedicated and agile team made up of smart individuals, you’re more likely to spot problems with your original idea and pivot in time to make a new idea more profitable in the long run.

Venture capitalists look for the potential in teams before they worry too much about ideas. If you want a better chance at attracting funding for your idea, focus on your team first.

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