8 Signs You Should Not Bet on a CEO

We have had the privilege of investing in dozens of great entrepreneurs, but we have passed on investments in thousands of others. Because we’re presented with so many investment opportunities, we tend to use heuristics as a first screen. Here are some major red flags that tell us a startup founder might not be somebody we’d want to back:

  1. It’s possible for anyone with a little courage and resourcefulness to find a mutual contact who is willing to introduce them to an investor. If the founder can’t get a warm introduction and instead cold emails us, they don’t understand business development or how the world works.
  2. The founder cites meaningless accolades prominently in their identity (deck, email signature, etc). Many individuals in our society have been programmed to seek badges of high grades and top universities and are stuck on a status-seeking treadmill. For those who crave approval, building a startup is often just another checkbox. Thousands of people win awards like Forbes 30 under 30 and speak on panels at tons of conferences so showing this off suggests both insecurity and questionable motives for a person’s work.
  3. A great leader actively attempts to hire new executives who are clearly superior in key areas. We avoid founders who worry that a more talented hire would supplant them, or who may lack self-awareness about their own strengths and weaknesses and thus fail to understand how new exec hires could fill those gaps.
  4. CEOs who don’t socialize with their teams and insist on rigid separation of “work” and “life” will never be able to build a band of creators who like each other and spend time together both inside the office and out. The best innovative companies consist of people who like each other and play together as well as work together.
  5. Any successful entrepreneur will tell you that most value lies in the execution of any idea; CEOs who aren’t confident in their ability to execute more swiftly and accurately than the competition will not win. We pass on entrepreneurs who are overly worried that their idea will leak or someone will steal it, or spend a lot of time fretting about non-disclosure agreements and suspecting others of treason.
  6. A competent founder will always have an opinion on why the industry they are trying to disrupt is broken. If the entrepreneur does not have a systematic vision of how to reform their industry or is unable to garner the support of successful industry insiders as key advisors for their project, they are unlikely to succeed.
  7. Impressive founders show a track record of clearing their calendars to close key hires and persuading friends and colleagues from previous companies to join them in the future. We are unlikely to bet on an entrepreneur unless they are prepared to spend a huge amount of time recruiting and have attracted talented people from previous projects.
  8. We are highly skeptical of an entrepreneur who has not mastered all the relevant numbers and statistics about his/her company’s performance, the industry, and the competition. Similarly, if a CEO gets defensive or upset when pressed about difficult topics around the business or a round of fundraising — and can’t admit when they have failed or made mistakes — they are unlikely to build a winning company.