How VC funds evaluate and identify strong startup leaders and teams

This article is the second in a series of three articles about building a team that will help you raise $10M+ in Latin America. Check out the first article You need a great team, not just great traction, to raise a $10M+ round in Latin America.

Many entrepreneurs expect that VCs will only spend time with the founders. That’s probably true at pre-seed and seed, but by the time you want to raise $10M+, most funds will want to get to know each individual leader on your team and how your entire team fits together. 

TL;DR: Funds evaluate your entire leadership team individually and how they fit together as a team 

• VCs talk with your C levels, sometimes direct reports to C levels, and sometimes other key people, depending on the size of the round
• VCs evaluate each individual leader, as well as how your leadership team of individuals fits together as a team

VCs evaluate each leader’s communication skills, understanding of your business, expertise in the role and overall leadership potential 

VCs look for the following when evaluating each leader on your team:

Communication skills and business understanding: Each individual team member should be able to:

• Avoid ambiguity and always tell the truth 
• Clearly and concisely describe the business, the problem, and the solution
• Clearly and concisely describe what they do in the company
• Explain key company metrics for the last 12-18 months, and  how their role connects to these metrics
  

Expertise in their role: Each leader should show they are the right person for the role by being able to: 

• Talk about their relevant functional and industry experience 
• Zoom in and talk about specifics of their role, then zoom out and explain how their work affects the business
• Describe what they prioritize in their role and why it moves the needle for the company

Confidence in the leader’s potential:

• Prove that they can inspire others and make people excited to join their team
• Show that they are an A player with high EQ
• Make a VC want to fund them if they started their own company

• Gain a VCs trust to execute with a $10M+ check

VCs want to see an effective team that gets things done, not a collection of stars that don’t work together

Effective, balanced teams outperform a few individual stars surrounded by a weak team. VCs assess each individual leader, but also the quality of your leadership team as a whole and how well you complement each other. VCs meet hundreds of companies per year and automatically compare your team to other teams they've met. 

VC investments are already risky, so VCs want to invest in teams that are at least somewhat derisked and have proven that they can effectively work and execute together. To be confident investing $10M+ in you, VCs look for answers to the following questions about your collective leadership team:

Top talent on your leadership team: You want to show VCs that: 

• The founders have identified, attracted, and retained top talent
• The leadership team has multiple A players
• This team ranks highly compared to others in the industry
• You’ve hired people that could raise money if they started their own company

The leadership team complements each other well: VCs want to have conviction that:

• The team trusts the founders to lead the company
• The team communicates effectively with one another
• The leadership team has the right characteristics for their business
• The team makes important decisions efficiently

You have the right people in the right roles: Prove to VCs that:

• Your team has the skills and expertise needed to make the company world-class
• You have the right people in key leadership roles like CEO and COO and are involving the right people in fundraising
• Salary and equity grants appropriately reward the best leaders

People debt on your leadership team: VCs want to see if: 

• One or more people on your leadership team have experience leading a company to where your company wants to go
• Any key leaders on your team are too junior for their roles. 
• You know which senior roles you need to hire for and in what order you need to hire them

Start practicing: Make sure your team can answer the questions that VCs want to know before you start raising your round

VCs prefer genuine responses to rehearsed ones, so don’t make everyone on your team into parrots saying the exact same thing. Your want to build a cohesive leadership team where everyone understands the business, their role, how they drive the company forward, and can think on their feet. 

Use our pre due diligence exercise to see if you have the right team in place, and help your team start practicing the types of conversations they will have with VCs during DD. These conversations are a learning opportunity, so relax and start practicing. Investors want to see that you’re a derisked, high-potential team. Start the process early and make it a part of your culture. This way, you’ll be able to show VCs that betting on your team is the right choice.