Does Your Startup Team Make The Cut?

Here is one question every conversation you’ll have with an investor will include: Do you have the right team to execute your idea?

#TEAM A top priority for any investor, and goes without saying every founder too. A lot of investors believe that a large part of angel investing is pretty much betting on the founding team.

But, what does team even mean? What do investors look for?

LetsVenture has 2200+ investors on our platform. We chatted with a bunch of them to get a concrete answer and the discussion boiled down to 3 key things:

1. Domain Experience - The more exposure you have to a problem the deeper your insights are and usually, the stronger your proposed solution. It tells investors the level of research that has been put into the idea.
2. Previous Startup Experience - Once bitten, twice shy? Not in the startup world. Teams with previous startup experience have a better idea on what to expect and how to navigate to success.
3. Pedigree - Touchy subject, but investors tend to lean towards teams that have been vetted by reputed educational institutions aka IITs, IIMs, Ivy League schools. If that’s not you, don’t sweat it; it’s only one tick in a checklist.

We went a step further and analysed how much each factor affects the chances of a fund raise. Using data from Q2 of this year, let’s get an idea of what matters the most in a team. The data includes startups who applied for Investor Connect in Q2 (600+), the fundraising section of our platform and companies who got funded over the previous three months (about 90).

Let’s start with the Pedigree bit. We plotted the Pedigree of companies looking to raise funds (blue) and the ones who successfully raised funds (red) below.

Investors have a clear inclination towards Tier-1 teams where almost 60% of the fundraising companies had at least had one team member from Tier-1 college. Now the other question, what got the Tier 2/Tier 3 startup teams funded then? We looked at all the non-Tier-1 companies who raised funds and here is what we found:

Out of all funded startups where the founders didn’t have Tier-1 Pedigree, 89% of them either had Relevant Experience or Previous startup experience with them.

Next, let us move on to Domain experience. Do note that this part is not as objective as Pedigree (which is pretty binary) and that the LetsVenture curation team has worked hard to study all data and startups in consideration. Below, you’ll find Domain expertise in the team looking to raise funds (blue) and the ones who successfully raised funds (red) plotted together.

65% of the companies which raised funds had relevant experience in their team which clearly indicates that it certainly plays a huge role. One more step: we thought it would be interesting to look at what got the teams with no relevant experience funded.

Surprisingly, out of all the funded startups who didn’t have relevant experience in the domain they have ventured into, ALL of them either had a Tier-1/Tier-2 Pedigree or had worked for some startup or had founded one before. #nobrainer ?

What do you think so far? Tweet to us @letsventurein , we would love to see what’s cooking inside your head :)

Moving on, let’s explore how previous startup experience affects your chances of raising funds. No graph here but a #whooping 50% of the companies who’ve raised funds didn’t have any previous startup experience. Does that mean a startup experience doesn’t count much? Or is this a rare something in the ecosystem? Note: Out of all the funded startups who didn’t have any previous startup experience, ALL of them either had a Tier-1/Tier-2 Pedigree or had relevant experience in the domain they have ventured into.

Lastly, let’s look into the individual impact of these attributes on your fundraise. Here is the data of a particular attribute along with the probability of you raising funds if you possess that attribute. For example: Out of all the companies who had Tier-1 founders and were looking to raise funds, only 15% eventually raised funds.

Attribute

Probability of raising funds

Tier-1 Pedigree

0.15

Relevant Experience

0.18

Serial Entrepreneur

0.66

Previous Startup Experience

0.1

In summary:

1. Further proof that these 3 factors are the key ones that an investor would look for before investing in a company: Number of companies with Tier-3 Pedigree and neither any relevant experience nor any previous startup experience = ZERO funding.
2. Pedigree definitely helps a startup looking to fundraise but its not the biggest deciding factor. There are other factors which matter a lot.
3. Pedigree and previous startup experience does help you in the fundraising process (excluding Serial entrepreneurs here) but having relevant experience gives you a better chance of raising funds.
4. Being a serial entrepreneur stands makes a startup an outlier. If you have already sold your company or have exited successfully, raising funds should not be a challenge for you. And this is definitely a rare thing in the ecosystem with just 2% of the founders raising funds were serial entrepreneurs.

Stay tuned and let us know if you have any questions, reach us at startups@letsventure.com

Happy Fundraising, you got this!