Almost every business book highlights the critical importance of great people in building great teams. That’s about as obvious as saying that height is an important factor for success in basketball. For any given role, however, the challenge is to determine what attributes in a person will make them “great” in a particular role.
For almost any job, hiring managers will look at a variety of factors with one being “relevant experience.” What you need to understand is that in much of the VC community, “relevant experience” is not a criteria… it is the criteria for evaluation.
If you are starting your third new company (after two successful exists) you can feel confident that pitching the “Pet Rock II” will stand a good chance of getting funded. On the other hand, if you have worked in big companies for your whole career and have a developed a new battery that is four times more efficient, non-toxic, recyclable and half the cost to produce using existing technology, be prepared for a tough sell.
I am not trying to express an opinion regarding if this is good or bad. I am just sharing an observation so you can prepare for it.
Clearly, executing a successful startup requires a great deal more than just a great idea or product. Additionally, it is often very hard, if not impossible, for a VC with an MBA to evaluate the technical merits and feasibly of a new piece of software. So, it is natural that a good part of their assessment will focus on “relevant startup experience.”
While you can’t change history (well maybe you can in some countries but that is not the point here) you can improve your chance of success by highlighting experiences that improve your “startup cred.“ Here are some examples:
- Founder/co-founder in a successful startup: This is gold. You are good. No need to read on.
- Early employee in a successful startup: This is silver. You should be in pretty good shape.
- Just left a “hot” tech company: Silver as well. If you left companies like Twitter, Facebook or Google.
- Founder/co-founder in an unsuccessful startup: This is bronze and still good. It’s experience that counts.
Unfortunately, when we started Formation Data Systems, I had no “startup cred.” I have invested in startups, advised them, acquired lots of them, integrated them into large businesses and even started several $100M+ new businesses within larger companies but, alas, no startup cred.
Lack of startup experience is clearly not a complete impasse but it was a big hurdle that we had to overcome. I thought my other experience and abilities would be helpful but it actually seemed to create a concern that, if you are such an entrepreneur, why did you finish college and get a job with a big company? I also worked for those big companies for like 10 years, which I guess was a huge red flag.
It’s not like I was hoping that my athletic skills would make me a good sportscaster (oh wait – bad analogy) or maybe that my business skills would make me a better politician (oh – not good either), I just didn’t realize that this would be such a large concern. I like to think I can do anything I put my mind to. I just hadn’t wanted to start a new company until now.
Lack of startup experience is a hurdle but obviously not insurmountable. For me, having a great co-founder that did have good startup cred was a big help. Other things also help. VC’s need to believe that you are serious and this isn’t a “hobby.” They also want to know you are focused and have a strong belief and passion in what you are doing. If you don’t have direct startup experience than pay special attention to elements that show you have the tenacity to make it happen.