How top VC’s are doing founder diligence

For aspiring startups, scoring investors’ offers tend to be highly selective processes, calling for founding teams to be targets of due diligence from firms. In particular, they often do “founder diligence”, which is an evaluation focused primarily on the founders themselves to determine their potential for success. But what are firms really looking for in founders as to call so?

In this article from Berlin-based executive coach Julius Bachmann, he tells of what six major European funds shared about their processes, classifying them according to the purpose of their diligence (support-oriented vs. selection-oriented) and whether they follow their own framework based on proprietary fund insights or more science-based frameworks.

  • Based on proprietary fund insights & support-oriented:

Northzone’s selection favours founders that comply with 6 main dimensions: being deep-driven (1), open for self-growth (2) while with a “healthy dose” of self-confidence (3), and who attract talented people around them (4). They also encourage founders to identify their own strengths and develop versatility across other business functions (5) without being overly controlling (6).

Digital+ Partners evaluates founders through interactions throughout their diligence process, as in deal meetings, pitches, etc. They look into how you act, how you answer questions, and how you interact with your team, all while focusing on 5 dimensions: leading one’s self, leading others, leading by results, leading as a founder, and leading with knowledge.

  • Science-based & support-oriented:

HV Capital appreciates founders with leadership capabilities, domain expertise, “raw intelligence”, and preferably some entrepreneurial background. But most of all, they greatly prioritize self-awareness, especially with founders in the midst of their first startup’s early stages. They believe that being aware of your “dark sides” and embracing vulnerability, for instance, seem key in scoring valuable opportunities.

EQT Ventures follows a similar approach, holding self-development in high regard. They find the challenge to be the greatest after founders’ first big venture round, when the “we” interconnected mindset becomes so strong that they believe it can come to hinder personal growth. Through strength evaluations, personality assessments, etc. they tend founders at both the individual and team levels.

  • Based on proprietary fund insights & selection-oriented:

Entrepreneur First claims to not select on the basis of past experience, knowledge, or ideas themselves, but on behavior and abilities related to your peers. They evaluate a founder’s ability with 5, though hard to excel at, main criteria: to challenge conventions, be driven to achieve, inspire followers, have good problem-solving and communication skills, and have technical knowledge they can apply.

  • Science-based & selection-oriented:

Eka Ventures seeks founders with a capacity and desire to sustain development over time, following a carefully structured diligence process with interviews and psychometric evaluations. The focus is placed on the founder’s individual strengths and weaknesses, self-awareness, self-growth, and evidence of “outlier achievements” as indicators of resilience and growth abilities.

According to the author, even if these investors are “best-in-class” in founder diligence, there is a lot of room for improvement. For instance, firms relying on their own frameworks for selection risk falling into bias and tending unique stereotypes, giving their back to a growing diversity of founders. Another concern of him is that evaluations rarely look into whether founders can build great teams, which is a decisive factor for scalability on later stages of a business’ development. (Author: Valle-Sosa, Adrian)

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