I seem to be asked every week about lone entrepreneurs versus teams of entrepreneurs and what my view is on the backability of each. While I have not seen any hard data on the topic, the empirical evidence appears to support that investors prefer teams. Now, I’m sure that there are examples of where investors have done well investing in a sole entrepreneur. However, I would venture to say that even in these cases the investors worked diligently to build a world class team around the entrepreneur.
Team is the most important factor when deciding whether or not to invest. The investment is in the team first, then the market and the idea. You’ve probably heard the saying, “I’d rather invest in an “A” team with a “B” idea, than a “B” team with an “A” idea. The truth is that “A” players hire other “A” players who challenge them, while “B” players tend to hire C players who will agree with them and not push back. How a new market will evolve over time is uncertain and possibly unknowable. The idea is bound to change over time as well. The team must must have the knowledge and maturity to handle this uncertainty.
The challenge with taking a chance on a lone entrepreneur is that he/she is incapable of recruiting and retaining “A” players. Without an outstanding team the chances of success are greatly diminished. Also, there is a cost that is incurred in terms of lost time and cash burn when you have a revolving door of talent. Especially, when you get into the habit of hiring too fast and firing too slowly.
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