The Founder Myth: There's No Perfect Founder Type
People believe they know how to define "the perfect founder." Good luck with that.
Many investors, venture studios and accelerator programs have specific criteria for the types of founders they invest in.
“We only invest in founders with domain expertise in the industry they’re disrupting”
“We only invest in young founders”
“We only invest in older founders”
“We only invest in teams”
“We only invest in technical founders”
“We only invest in teams of young founders that have known each other for a long time”
And so on.
Often this founder profile becomes a key part of the investment thesis. Investors swear by their own definition of “the best founder type.”
My belief: They’re all a little bit right and a little bit wrong.
Everyone is biased based on:
What they’ve seen win or lose before (albeit anecdotally); and/or
What they somehow believe to be true (through anecdotal evidence, industry trends, etc.); and/or
What founders look like (i.e. “If they look like me, they must be good.”)
This happens everywhere. Look at hockey. The Florida Panthers win two Cups in a row and suddenly every team scrambles to copy them. History is full of these swings. Big hitters were the rage until they got exposed for being too slow. Then speed ruled, and smaller players thrived. No, wait, it’s all about having an elite goalie. Wrong, you need top flight goal scoring. Scratch that, defense wins championships! Dammit. 🤯
Chasing trends is tough. But at least there’s adaptation. Venture capital adapts very slowly and many investors get incredibly entrenched in their theses, even if they’re not generating real returns.
I believe there are personality traits that consistently separate the best founders from everyone else, but I’m not convinced on everything else.
Does founder age matter?
No.
Statistically, older founders are more successful (to a point), but most investors target younger founders. Why? A lot of anecdotal evidence and biases:
Young founders (in their 20s) have no obligations, so they can grind like maniacs. Perhaps true, but (a) I know a lot of 40+ folks that grind like maniacs; and (b) how much of that grinding is productive?
Young founders are so naive they aren’t held down by traditional beliefs. 20 year olds don’t know enough to be burdened by how hard things will be, and they challenge the status quo. I’d say that’s true, but is naive optimism the #1 reason for startup success? Doubt it.
Young founders take more risk and are more adaptable. Risk-taking and adaptability are important, but why does the evidence suggest older founders are more successful? Maybe they know more (about how to do things, the industry they’re in, etc.) to avoid the risk altogether.
Young founders will pursue bolder visions. Maybe, but I don’t think you can say that definitively. I think they make bolder claims, “We’re going to blow up that old school joke of an industry with our kick-ass AI tech!” That’s not the same as having a bold vision. Or making impact.
Y Combinator, which is incredibly successful, set the tone for investing in young tech teams. A Business Insider article reported that in 2022 the median age was 30, but it’s now down to 24. The 30 year old median age surprised me, 24 does not. I wonder if it will continue to drop.
I have nothing against young founders. We need more of them. But exclusively investing in young founders seems shortsighted.
Does founding team size matter?
Yes and no.
The research says:
Solo founders have the least odds of success
2-3 founders have the highest odds of success
4+ founders decreases the odds of success (from 2-3 founders)
Yet founder issues are one of the top reasons for startup failure.
How do we reconcile that 2-3 founders is best and yet founder conflict is one of the most common reasons for startups to fail?
Exactly.
Anecdotally (across my 40+ investments and 100s of startups I’ve supported) I’ve seen pretty much every combination of founders (from solo to four+ people). In that mix, I’ve seen solo founders win and 2-3 person teams collapse spectacularly (with lawsuits involved), and everything in-between.
The bias towards 2-3 founders makes sense. There is research that backs it up. But aren’t startups supposed to buck the status quo and challenge everything? Sort of. While every investor is looking for outliers (and claiming each investment is the one that’ll “make the whole fund”), they’re using pattern recognition to get there and the success rate is still low. Gamblers also believe they have a system.
Solo Founder + Venture Studio = More Winning?
Venture studios often work with solo founders and position themselves as co-founders or temporary co-founders during the startup validation and building process. The hypothesis is that a venture studio, with more structure, resources and assets can “replace” what typical co-founders might bring to the table, recruit the right CEO/founder to execute (once some validation has taken place) and provide the support system necessary. Early data (again anecdotal) suggests this works, and I certainly believe it does (otherwise I wouldn’t be running Highline Beta), but it’s not a guarantee.
Does gender or race matter?
Yes and no.
There’s meaningful evidence that female founders generate more revenue per dollar invested and have a higher exit rate.
But recent data suggests that female founders get 2% of VC dollars. Ouch.
According to Carta (from 2023) women account for 13.2% of startup founders and men make up 86.8%. Simply put: many fewer women are founding or co-founding businesses, but when they do, they do well (although very few raise capital).
Let’s be honest: this is all bias. It doesn’t look like huge improvements have been made over the years, which is disappointing.
Should you exclusively invest in men because historically they’ve received most of the funding? Of course not.
Race follows similar patterns to gender. Black and hispanic founders receive a very small percentage of venture capital and the check sizes tend to be smaller. But there’s data to suggest that ethnically diverse founding teams, when funded (big if!) outperform homogenous teams in exit value and investor IRR (investment rate of return).
Does domain expertise / industry knowledge matter?
Yes and no. Maybe. Sometimes. 😏
You’ll find people who fundamentally believe in the importance of domain expertise and industry knowledge. You’ll find other people that believe the opposite—they’d argue that the lack of expertise, being an outsider, is what drives disruptive innovation.
How can both things be true at the same time?
That’s startups!
My perspective on founders with no domain expertise / industry knowledge:
I don’t want to invest in martyrs. Founders that believe they can simply jump into an industry because, “it’s so old school and obviously broken,” are going to get their ass handed to them. Superficial understanding of something with a massive ego is scary.
I’ll invest in founders that recognize they don’t know a lot, with a willingness to learn. But they still need a healthy ego to believe they can make a difference. Venture studios play an interesting role here, ideally as domain/industry experts with deep knowledge, experience and networks that can fast track a willing founder to figuring things out.
My perspective on founders with domain expertise / industry knowledge:
I don’t want to invest in dinosaurs. Founders that believe they know everything and “everything has to be done my way or it’s wrong,” are too calficied. When faced with evidence that suggests they’re wrong, they usually just keep ploughing ahead, ignoring the signals. No thanks.
I’ll invest in founders that know an industry, as long as they are open to new ideas and input. Again, there’s a balance between ego and being humble that’s important.
Does “who came up with the idea” matter?
Most people will say “yes” because it seems obvious.
But what about venture studios?
One of the biggest pushbacks against venture studios is that they typically recruit founders after a bunch of work has gone into the startup idea. Venture studios will validate an opportunity (often over 3-6+ months), build an MVP and even get initial pilot traction…all before hiring a CEO/founder.
Many investors flat out do not believe in the idea that you can “hire” a CEO/founder.
“It wasn’t their idea, they won’t be passionate about it.”
“Hired guns don’t work as hard as original founders.”
“They’re just in for a quick win.”
“Any entrepreneur that needs a venture studio is a B-player.”
That last one—only B-players join venture studios—is nasty. I understand why investors might think that way, because the mythology around startup founders is strong. It’s 1 or 2 people against the world, putting the future on their backs, and without any meaningful help, they build a billion dollar, world-changing company. Come on now… 😜
Fact: No founder has ever succeeded without a ton of help.
But I get it.
I used to hear the same argument for startup accelerators. “The best founders don’t need startup accelerators.” What founders don’t need are crappy startup accelerators (or crappy venture studios, or crappy investors). The best startup accelerators create tons of value. Same holds true for venture studios and investors.
So-so quality venture studios will attract so-so quality founders. It’s easier to build a so-so quality venture studio (although harder to keep it alive), which means more of them emerge, bringing in a higher volume of so-so founders and the cycle continues.
The best venture studios are proving that you can recruit founders/CEOs later in the startup journey and still win. Lots of investors will stay firm in their belief that this is nonsense. So be it.
Does motivation matter?
Yes, but not every founder needs the same motivation to be successful. Why? Because the definition of success varies.
Not all startups need to be huge outliers that are worth billions, go public, etc. These are great (and drive VC returns), but few and far between.
There are plenty of great startups and successful founders that exit early (some intentionally) or decide to build “evergreen” profitable businesses. VCs are less interested in these businesses, but other investors including angel investors, corporates/companies or venture studios could be.
The key is aligning the opportunity with the founder’s motivation, in effect, looking for “founder/targeted outcome fit.” For example, there are some venture studios that are exclusively building “small businesses” (that don’t require tons of capital and can operate profitably). They’re not hiring founders that want to “ride or die” for billion dollar exits.
In all scenarios, “get rich quick” is a bad motivator because very few people starting companies accomplish that, and when the shit hits the fan, these wannabe founders bail.
I’m mostly interested in intrinsic motivation: Why are you (as a founder) deciding to do this thing? You could do a lot of things, so the fact that you’re selecting a specific startup to build matters.
What’s the ideal personality of a founder?
Oh boy. Now we’ve stepped in it. 💩
I’m sure there are a bunch of studies on this, but here’s my take:
Insane resilience. I don’t know how a founder survives the rollercoaster without being crazy resilient. There’s a reason a lot of successful startups have a flat growth curve for a few years and then it skyrockets—resilience. (I know AI startups are changing the “ideal growth curve,” but they remain the exception to the rule, and I’m not sure they’ll survive either).
High confidence with a dose of modesty & intellectual honesty. Without an ego, founders fail. There are so many naysayers and bumps along the way. In tough times, a founder will have to rely on their ego and self-belief. But without a dose of modesty and intellectual honesty, founders become delusional. Founders with God complexes are a nightmare. Maybe they win, but I still don’t want to work with them
Always Adaptable. There’s a balance between, “I know what’s right,” and “I better be flexible on this.” Lots of learning, creativity, willingness/gumption to change plans and make tough decisions are all part of the process. I’m bucketing all of this under adaptability. Things move fast, founders have to be ready for it (or adjust quickly).
Super Scrappy. A comfortable founder is a failed founder. There are never enough resources, and there’s never enough time. Certainly at the early stage, scrappiness (a “get shit done” approach to everything) is paramount. But even later on, as a company scales, you don’t want to lose that mentality. That’s what sparked the whole “founder mode” hoopla last year.
Although not a personality trait, I want to add one thing: Sales.
If you can’t sell to customers, partners, employees, investors, etc. you’ll fail. I don’t care if you’ve got a PLG AI startup that’s taking off like crazy, founders can’t sit back and let things happen. Everything is sales.
The word “sales” may conjure images of over-the-top hustlers hawking crap that people don’t need. That’s not what I mean. The exercise of selling can be authentic, transparent and honest.
Why would you want to lie to customers? Solve an actual problem that genuinely matters to them. Understand their pain better than they do.
Why would you want to lie to candidates you’re recruiting? Define your startup’s culture and values (whatever they may be) and pitch them.
Why would you want to lie to investors while fundraising? Angry investors (especially if they’re on your Board) usually leads to disaster.
If you build a house of cards it’ll eventually collapse. Don’t sell bullshit. But you gotta sell.
So, do we have the prototypical founder locked in?
No. There’s no such thing. The perfect founder doesn’t exist. They’re not produced in some secret Silicon Valley factory (as far as I know!)
Founders come in all shapes and sizes, from everywhere in the world.
Although when you ask ChatGPT for the “prototypical founder” you get this:
Any given investor may have a very definitive view of what a founder should be. Cool. Doesn’t mean they’re right. If you don’t match the criteria for an investor, move on.
Venture studios are a completely viable and valid way to build companies, even if they recruit founders after an idea is validated. Does everyone agree? No. Should you care? No.
Does every founder need to aim for a billion dollar exit? No. Does that demonstrate some “lack of ambition”? No. People have different reasons for doing “the same thing” (starting a company), why would anyone waste time judging that?