I often get asked, “How do you evaluate a startup to see if it will be a fit with your Lab IX accelerator?”
Some of our criteria are relatively straightforward, such as the startup’s current funding situation, a working prototype and strategic fit within Flextronics’ business and technology and innovation roadmaps. However, the most important thing we look for is less straightforward to evaluate – what’s the strength of the founding team?
Some of the things we look for can be determined from the team’s biographies and resumes: Is the team experienced in managing a company or bringing a product to market? If not, do they have advisors on board who can help them? Do the founders have prior experience in startups? Do the team members have complimentary skill sets that will cover fundraising, sales, engineering, operations or marketing?
One of the crucial pieces of information about the team is hard to discern: what’s the working relationship between the co-founders? Lots of times, a co-founder relationship is almost like a marriage, which means that it’s incredibly important and can make or break a startup. Founders Dilemmas, by Noam Wasserman, is a great book that details mistakes that startups make, and there is an entire section devoted to the importance of the co-founder relationship. Co-founders spend a lot of time together (ideally) and their relationship sets the tone for the rest of the founding team. Some of the things we look for are: How well do the co-founders work together? Have they worked together before? What are their communication styles?
I have a personal story regarding a startup that I was involved in: several years ago, my boyfriend at the time started working on a consumer electronics startup idea. When a close friend, significant other, or family member approaches you about a cool startup idea, you want to help them out and be supportive. So, I got roped into the idea and helped to do significant amounts of engineering work. At the time, we were both engineers, so we had a lot of overlapping skill sets, but no marketing or sales skills, which was a big problem. You can build the best product in the world, but if nobody knows about it or can sell it, what’s the point? We had worked together before and knew that we had complimentary styles – he’s better at ideas and vision, and I’m better at doing detailed planning and execution. Communication – well, that was an issue.
The startup took up all of our spare time (we each had full-time engineering jobs), and, initially, it was fun, but as months progressed, I wondered about the marketability of the product. In a co-founder relationship, honest communication is extremely important. However, in a romantic relationship, you’re concerned about the other person’s feelings, even though honesty is preferable. If you’re doubtful, think about how you would answer the question “Do I look fat in this outfit?” or “Do you think I’m losing my hair?”
My concerns about the total addressable market were initially voiced as “Honey, we just spent several months doing engineering work, did you get a chance to do that market analysis yet?”, which progressed to “I’m not so sure that the product will be as popular as you think it might be” and then to “Are you sure this thing fulfills an actual need?” and finally to “There are only three hundred people in the world who will buy this product, yet we are targeting a mass consumer price point!” over the span of about a year.
Needless to say, the startup and the relationship did not survive.
Can you be brutally honest with your co-founder and maintain both your personal and working relationship? It can be difficult if there is a prior history between co-founders, such as that seen between family members, romantic partners, or close friends. This doesn’t mean that we automatically rule out startups with co-founders that have these types of relationships, but we do think about these dynamics and how it could affect a young company, so we spend extra time evaluating the team if we are interested in investing. It’s common to hear from VCs that the most important part of a startup is the team, and it’s no different for us – we just happen to have an extra hardware component thrown into the mix.