Many angel investors will tell you the single most important factor to look at when evaluating a
startup is the people involved. It may sound overly simplistic, but more than a few people get
caught up in the numbers or by the flash of some product feature.
People are an enormous factor as to whether a startup flounders or takes off into the stratosphere.
Alan Beattie, a recent podcast guest, knows just how challenging it can be to accurately assess a founder or team. He makes the apt point that skilled communicators can project chops or substance they don’t have and, on the other side, that poor communicators can come across underwhelmingly (even when they can back up every one of their words).
What's the solution to this conundrum? Well, there is no silver bullet. But there is one thing that many VCs are starting to rely on. Emotional intelligence (EQ) has been steadily creeping into hiring practice over the years, and it's now taken its place on the VC assessment checklist. It has two core components, which are:
- The ability to recognise, understand and manage our own emotions
- The ability to recognise, understand and influence the emotions of others
The standard line runs something like this: a founder who is high in EQ will be self-aware enough to know their limitations. They’ll bring in new hires to complement the existing team. Conversely, a founder who is lower on the EQ spectrum may have more blind spots and could lack the ability to attract or retain top talent a startup desperately needs. In short, high EQ people are seen as better leaders, the type who can deliver in terms of growth, scalability and higher returns for investors.
How is EQ measured? There are tests of course, but there are a number of problems with the testing methodology. There may be no perfect assessment tool, but some questions you may want to ask yourself are:
- How often does a founder consult with others?
- Do they have good listening skills?
- How does a founder manage people? Are they inspiring? Encouraging? Positive?
- What do they do when problems come up?
- How does a founder handle criticism?
- Are they able to stay flexible without losing focus?
- What kind of team has a founder assembled? Is it a cohesive unit, or is it dysfunctional?
All of these are great ways to start thinking about EQ in the context of sizing up a founder - particularly the last one. In terms of early-stage investment, there often isn’t much to assess in terms of traction or financials. It’s really about assessing the core founding team. This is a whole other matter unto itself, but in no small part, the team can be considered a byproduct of the founder’s character and emotional intelligence. It’s a great place to start.