Backing Winning Teams
One of the hardest things for an investor tries to gauge is: what are the characteristics that make up a winning team?
A large venture capital firm was recently looking at investing in a follow-on round at one of my portfolio companies and shared an interesting data point with my CEO - the single most highly correlated factor that they found in analyzing hundreds of portfolio companies was actually a very obvious and simple one. If the team had previously been successful and made money as a team, they were significantly more likely to be able to do it again.
Creating companies from scratch is very, very hard. Too often than not, there are soap operas at start-ups and self-inflicted wounds that cause failure. HBS Professor Bill Sahlman, in his seminal work on "What Do Venture Capitalists Do?" in 1989 (!), found that 65% of all start-up failures are due to people issues.
And so it would make sense that a team that has performed well together as a unit and (again, importantly) made money would have a leg up when embarking on a new company again, putting aside their domain knowledge, capabilities or execution skill.
This perspective is one of the factors behind our new investment announced today, SaveWave. The company is a spin-out from my old company, Upromise (acquired by SallieMae in 2006), led by a team I worked with over 10 years ago. The SaveWave team created and managed a successful, very profitable Internet consumer company and built an amazing national network of grocery and drug retailers comprising over 22,000 stores. I'm really thrilled to have the opportunity to work with the team again to take this national network and provide a white label promotions and digital coupons platform across the industry.
Other investors alongside Flybridge Capital include First Round Capital (Josh Kopelman), IA Capital (Roger Ehrenberg), Ron Conway, Founder Collective and Upromise founder/former chairman Michael Bronner.
So what's the lesson for entrepreneurs who have not yet had a big success to build upon? When evaluating a new start-up opportunity, look to join a team of folks that you would be excited to perform a second act with - and has the characteristics of being winners. The alumni of almost every major successful start-up has spawned numerous other interesting companies. I would argue joining a winning team, and bonding with that team in a manner that transcends the particular start-up you are operating in, is far more important than your specific role in the start-up.