Funds Invest in You More Than They Invest in Your Product

It is easy to fall in love with a product. Founders do it all the time.

They know every screen, every line of code, every feature and every customer reaction. After months or years of work, the product can feel like the most tangible thing the company has to offer an investor.

The investor, however, knows something uncomfortable: the product they are looking at today is probably going to change.

It may pivot, move to a different customer segment, change its pricing, add a second product, enter another market or disappear entirely in favor of something the team has not invented yet.

The people, meanwhile, will still be making the decisions.

That is one reason the phrase “VCs invest in people” appears so often in venture capital. It has become a cliché in some circles, but there is real evidence behind it. In a study of 885 venture-capital professionals across 681 firms, the management team ranked, on average, as a more important factor in investment selection than the product or technology. Investors also assigned greater weight to the team when explaining future success or failure. Stanford GSB

That does not mean the product is irrelevant. A brilliant team selling into a market that does not exist is still a difficult investment.

But an investor also reads the product as evidence about the founders.

How did they arrive at the insight? How do they speak with customers? Which trade-offs did they choose? How quickly do they learn? What do they understand about the market that others still do not?

Even the way a founder answers a question can be useful information.

A founder trying to prove they know everything may sound less compelling than someone able to say, “We do not know that yet, but here is the experiment we are running to find out.” In an uncertain environment, the ability to learn can matter more than the ability to appear certain.

Investors also look closely at the relationships within the founding team. Is there a real division of responsibility? Can the founders disagree productively? Does one founder hold every customer relationship while the other barely knows what customers are saying? Are their abilities complementary, or are they simply two very similar people?

They are also looking for the ability to recruit people who are better than the founders in specific areas. A successful startup does not remain a five-person company forever. The founder who built the first version of the product personally may later need to recruit an excellent product leader, hire a VP of Sales, build an executive team and give up some of the direct control that helped get the company this far.

That leads to a quality that is discussed less often in pitch meetings: the ability to change.

A growing company forces a founder to change roles several times. At first, they do everything. Then they hire people to do the work. Later, they manage the people who manage. What was a strength at one stage can become a bottleneck at the next.

So the fund is not only asking whether the person in front of them can build today’s company.

It is asking whether that person can become the leader the company will need five years from now.

There is also an important point about charisma. Presence helps. Founders need to persuade employees, customers and investors. But charisma is not a substitute for capability, and research has highlighted the risk that investors can reward strong self-presentation more than actual qualification. Harvard Business Review

A good investor tries to separate the person who tells an excellent story from the person who builds an excellent company.

That is why references, due diligence, operating data and follow-up conversations matter so much. The pitch creates interest. Behavior throughout the process creates trust.

A founder raising capital does not need to turn themselves into the character they imagine the fund wants to meet.

They need to understand that the company is also evidence of the way they think.

The product tells investors what you built.

The numbers tell them what happened.

The way you understand both tells them who they may be spending the next several years with.