Great (Pre-Seed) founders
The difference between good and great founders is big. In the Pre-Seed stage, with almost no metrics to show, the gap is even more extensive.
Silicon Valley changed
Silicon Valley attracts people from all over the world, and because startup accelerators are all the rage, many of them come to the Bay Area when their companies or ideas are still very young. Most of the time, the first version of the product is online, and they leverage the acceleration phase and the mentors' network to improve traction and validate the ideas.
A few years ago, traction was primarily user's adoption, but today things are very different. Even before the pandemic, the ability to make revenues since day-one has been crucial to successful fundraising in this phase. This phenomenon is part of the radical change we all observed in San Francisco in the last ten years. Experimenting on the revenue model since day one is nowadays something investors appreciate a lot. It also means that a typical founding team in the Valley is not just a bunch of coders. Still, it includes people with business vision and an extraordinary ability to sell their products to users. Many people think that the era of freeware is over and that now successful startups make users pay for their products since day one. That is true for companies approaching their Pre-Seed too.
The Pre-Seed phase
Startups in the Pre-Seed phase are companies who are looking to raise their first round with institutional investors. Still, Angels are usually involved at this stage. Founders go looking for a Pre-Seed because they need to add some more resources to the founding team and accelerate product development. They usually are two or three co-founders who bootstrapped the company and sometimes raised some F&F capital.
The Pre-Seed round is probably the hardest round to raise because the company is too young to have valuable metrics to share with investors, and there's no product-market fit yet. That means that their personality and skills are critical factors to close the round.
Not every round closes as planned. Even for companies coming from Y Combinator's batches, the rate used to be around 30% a few years ago. I guess that it's pretty clear to anyone that to close your first round, you must have unique abilities.
Great founders in the Pre-Seed phase
Founders have not been made equal.
Good founders need to have something to show more than personality. Great founders are those rare persons who can raise a Pre-Seed round pre-product launch because of the effectiveness of their pitches.
How does a great founder look like?
Michael Seibel, CEO at Y Combinator, defines a great founder as someone who shows formidability. Every time he promises you something, he gets it done quickly. He moves fast and gets things done all the time. That's a rare quality, and you treat those people with respect.
I must say I completely agree with Michael, but it rarely happened to me to meet such a person. In the Pre-Seed funding, you have two factors that drive your job:
You meet with founders a couple of times for not more than 90 minutes overall. When you invest in distributed teams, as we do, most of the time is a video conference call.
You need to decide quickly because good deals don't stay on the table unfunded for weeks—even if in these times things are changing a bit.
That means that we don't have enough time to evaluate qualities like "formidability."
In Pre-Seed investment, I value primarily three things:
Determination.
Will to dominate a small niche. Then expand.
Clarity of the pitch.
If I decide to invest, sometimes over time, great founders show other qualities that directly derived from the previous ones:
They are obsessed with the product.
They are obsessed with customers.
They have both great sales and tech skills.
They are focused and get people in their team to feel the importance and the urgency of what they want to accomplish.
Great founders are not the best hackers from MIT or Stanford, and they are not the most intelligent ones. Y Combinator's first investment thesis was precisely that, and it proved to be wrong.
Great founding teams have many skills. They can be persistent and flexible, but always determined to find the right angle and create big and profitable companies. It's rare to find all these qualities in a single person, and that's why two or three people in the founding team are optimal.
Good founders have part of those qualities, and they need to find ways to complement what is missing in their core team to create long-lasting realities.
Any founder can become a good founder, mostly reading, experimenting, shipping, and listening to customers. I'm also pretty sure that a good founder can become a great founder over the years, but he has to be perseverant in his goal and a little obsessed to learn.
People building startups outside the Valley should spend at least a few months a year in the Bay Area working on their products and talking to people. That's the best way I know to acquire a new mindset and the set of competencies that you need to create something great.