‘Founder First’ – Pioneering Early-Stage Investments

The phrase ‘Founders First’ is more than just a catchy mantra; it’s a guiding principle that underscores the importance of exceptional founders in early-stage investments. In this newsletter, we delve into a cornerstone of venture capital – the ‘Founder First’ strategy. In an arena where small companies often face an uphill battle against industry giants, understanding why we prioritise the qualities and capabilities of founders is crucial.

Why “Founder First”?

In the world of growth stage investing, the stakes are high, and the competition is fierce. Small companies often face the uphill battle of competing with industry giants, and the typical factors that investors consider, such as market share and their economic moat, don’t usually favour them. This is where the “Founder First” approach comes into play.

Instead of primarily evaluating the product or market, the “Founder First” approach shifts the focus to the qualities, abilities, and track record of the founders. These factors can be considered most important to the early success of a company, given it has significant challenges to overcome to compete with its larger peers. Given this axiom, there are two core qualities in founders we have identified as critical to the fruition of an early-stage company:

  1. Velocity and Execution: Time-to-market is a critical factor when working on innovative products and is likely the largest competitive advantage a start-up company may have. Founders who can swiftly turn their ideas into action, respond to the market with agility, and have the capability to execute their plans effectively are able to maximise this competitive advantage and beat their larger, more cumbersome peers.
  2. Grit and Resilience: Grit stands out as one of the most critical founder qualities. Entrepreneurship is a journey whereby obstacles and setbacks are inevitable. Founders need to have top percentile determination to be able push through extreme adversity for long periods of time and come out the other side on top.

It’s important to note that these founder characteristics are not the only ones that matter but are rather what we deem as non-negotiables to company success in the early stage. For example, other characteristics such as magnetism, clarity of vision, and founder network may be considered critical by some investors.

Equally, the ‘Founder First’ approach isn’t an absolute necessity in early-stage investing. Investment firms equipped with the resources to meaningfully assist portfolio companies’ operations may prioritize factors beyond the founder, focusing on product quality with the confidence that they can ensure correct execution. These investors typically engage at later growth stages (Series A+).

Nonetheless, many triumphant companies owe their success to their founders. Take, for instance, the founders behind the Australian start-up Loom, who endured nine months of fruitless efforts, executed two major pivots, and faced hundreds of rejections before reaching their first successful product which ultimately launched them into unicorn status. Every overnight success story comes with many chapters of challenges overcome.

How to spot a good founder

When it comes to vetting founders, there are varying levels of depth that an investor can undertake based on the stage of due diligence they are at. The standard approach is to undertake an interview and look for identifiable characteristics such as a founder’s passion and their technical expertise that may point to core characteristics that an investor is looking for. Asking about previous or hypothetical situations to probe founders for the above characteristics can be useful, but it is easy for a savvy founder to say the right things without enacting them.

This is where evaluating a founder through their network becomes invaluable. It offers insights into their past and potential performance in specific situations. It’s why investors often favour ‘warm intros,’ which allow for the immediate establishment of trust and quality through shared, trusted networks and an enhanced ability to undertake this vetting process.

However, ‘warm intros’ to great companies can be difficult to come by, especially internationally. This is often the reason people prefer to invest within their own geographical network. At SeventyTwo, we use our Global reach to identify and qualify great investment opportunities with a specific focus on the founder fist principle.

For example, TASØ Hospitality Group, is a Latin American hostel group with founders who exemplify the core qualities we look for. Their resilience is underscored by their ability to not only survive covid as a tourism exposed business, but still deliver an operating profit through one of the toughest periods for their industry. You can reach us at contact@seventytwoglobal.com to learn more about investing in the amazing TASØ Hospitality Group.

Tags: No tags

Comments are closed.