One Big (and One Small) Thing We Look for When Investing

In the next month, GAN Ventures will invest in another three or four startups.

Getting to a place where we’re about to invest means we’ve talked with a lot of early-stage companies lately. A lot. This year, we’ve already talked with about 200 startups—on track to match the 500 we spoke to in 2017.

And it has me thinking about our evaluation process. Mostly, I’m curious about what has typically helped companies stand out amongst the crowd, convincing us that they’re a worthy investment. In other words, what gives any one company a leg-up, helping them rise to the top of our list? As I’ve been considering the answer, it seems like two things have made all the difference—one big, and one small.

The Big Thing

Recently, a handful of accelerators came to our office for a workshop. During one of the sessions, I gave a quick chat about GAN Ventures and a question came up that I think is an important one. Someone asked whether I care more about a company’s founding team or the business model of the company itself.

And frankly, my answer is always neither.

It’s not that I don’t care about teams or business models; they’re both vitally important to the success of a company.

But the thing I really care about is a company’s CEO. More specifically, a CEO’s personality and character. And, of course, the CEO is often “the team” or at least a major part of a team. But I’m genuinely interested in the CEO themselves.

The obvious next question is, “Why?”

Because CEOs are ultimately responsible for the success of a company. They, more than anyone else, drive a company where it needs to go. So I look for the following traits during my discussions with early-stage companies, because I think they’re integral to what makes for a successful CEO (whether they take investment capital or not).
 
First: The Ability to Set a Vision
Anyone can have a business idea. You probably had one on the way to work today. But very few people actually have a vision for where an idea should go. Visions are philosophical. And having a vision requires the ability to sell others on it. So, on our calls, I’m constantly listening for a compelling vision, communicated from the CEO in a way that sells me on what they’re up to (because, more importantly, that means it’ll likely also sell potential customers and staff). Where do they want to take this idea, have they thought about it in detail, and do they seem to have an underlying sense of “why”—a grander vision—that people will latch onto?
 
Second: The Ability to Scale From Where They Are
Of course, CEOs have to get from where they currently are (like having their first product or first paying customer) to their longer-term vision.

So, I ask a lot of questions about their ability to scale to that vision. Things like:

How will you build a team?
Where will you fail along the way?
And, what are the next steps for your company?

Because I want insight into how you think about things.
 
Third: The Ability to Be Authentic
This one is so important. And it has two parts:

The first is your level of self-awareness. Are you self-aware enough to know what’s going on with you? Where do you typically struggle? Where do you thrive? What underlying issues tend to influence your relationships and your decisions? Basically, do you have the emotional intelligence to understand what’s going on with you today?

And the second part of authenticity to me is that you’re open enough to share those thoughts (both where you’re going to struggle or thrive and how you’re doing at this very moment) with your team and investors.

Doing both of these things makes you much more likely to build trust with those around you. And that trust will lead to engagement.
 
Fourth: Resiliency
And finally, being a founder is a long, lonely road. There are five bad things that happen for every good thing.

It’s vital that you remain resilient.

Hearing a CEO describe situations in the past that didn’t go as planned can tell you a lot about their sense of resiliency. It’s not that you won’t struggle. It’s that you have a history of overcoming your struggles and see them as learnings.
 

The Small Thing

By the time we invest in you, we will have talked with you five or six times. Over the course of those relatively brief conversations, we have to figure out a lot about you in a very short amount of time.

And there’s one thing that companies repeatedly do (or don’t do) that causes me to lose trust in them almost immediately.

It’s lack of follow-up.

The CEO says they’ll follow-up with some sort of doc. And they don’t. The CEO says they’ll follow-up with some sort of connection or reference. And they don’t. The CEO says they’ll get you something by Friday. And they don’t do it until the following Tuesday.

At its core, our review process is about looking for things that tell us who you are as a CEO. Are you true to your word? Can you be trusted?

And when you don’t follow-up, our minds go to crazy places.

Is the CEO trustworthy? Is the CEO lazy? Is the CEO just busy?

We don’t know. But you don’t want us asking those questions in the first place. So, when you’re approaching investors for funding, please…don’t lose all the ground you might have gained by not following up. There’s a good chance it’ll tank all of the efforts you’ve made, potentially costing you your next check.