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In the fall of 2013, the founders of Docalytics were looking for seed funding. The company’s product—a document viewer that lets companies track how prospective customers engage with sales and marketing content—caught the eyes of several investors, and the Minnesota software start-up closed its seed round $300,000 richer. For one venture capitalist, a single attribute stood out above all else: the team itself.
Ryan Broshar is the co-founder and managing partner of St. Paul-based venture capital firm Confluence Capital Partners. When his company evaluates the components of a start-up that’s courting its investment, “team is at the top of the list.”
“We know that you can have the best idea in history, but if you don’t have the right team—and a team that can execute—that idea is worth nothing,” he said.
Broshar believes a start-up team that wants to impress a VC should bring complementary sets of expertise and experience to the table. According to Broshar, that includes at least three roles: the hustler, boasting the most business know-how; the hacker, who brings the most technical expertise; and the designer, who crafts the product’s functionality and its visual aesthetic.
The Docalytics team fits these roles well: CEO Evan Carothers is the designer, chief business development officer Steve Peck is the hustler, and chief technology officer Ryan Morlok is the hacker.
“Each team member brings a unique skill set to the team, and because of this, they can grow and solve problems quickly,” said Broshar, whose firm was one of several investors in Docalytics.
Broshar’s judgment seems to have been spot-on. Docalytics recently added a satellite office in Milwaukee to its St. Paul headquarters, and it’s looking to hire more staff.
A detailed assessment of a new company’s management team is a key part of any VC firm’s due diligence. For their high-stakes investment, VCs are betting on high returns, so they’re looking for clear signals that the people behind an emerging business can make it thrive.
Broshar and his partners also look into founders’ backgrounds, searching for evidence of past career and business success. They speak to former colleagues who can vouch for the managers’ technical expertise or business savvy.
Broshar noted that he prefers dealing with a business team that’s been operating together for at least a few quarters, “so we know if they’re going to be a good fit or not.”
However, the founding partners don’t have to be BFFs. “You might be best friends today, but that doesn’t necessarily mean you’re going to be best friends years from now,” Broshar said. “That’s OK, and we understand that. It’s going to be part of the life cycle.”
Having one or more part-time owners in a business can raise a red flag in a VC’s assessment. One partner may be putting in 80 hours a week, while the other can only be in the office on weekends. It’s a scenario Broshar said he runs into often. When he does, he urges the part-timers to have a plan for joining the company full-time.
“If not, then the company probably shouldn’t be looking to raise venture financing and should, instead, look to continue bootstrapping the project,” Broshar said. “We want everybody on the start-up team to be fully committed to it.”
When the workload and equity are unevenly divided, working out the formula for splitting the shares can get especially complicated—something Broshar said his VC firm would rather avoid.
Broshar also looks for a quality that’s a bit harder to define—some personality trait that identifies the person as fearless, confident, and destined to be a winner.
“Something that shows they’re incredibly determined—or just weird—can be an asset,” Broshar said.
Sonya Stinson is a writer for print and web publications, businesses and nonprofit organizations. She writes about higher education, careers, small business, retirement and personal finance.
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