The Itinerant Engineer

Last year, I co-founded a company. In October, we presented the company to 140 investors at AngelPad’s fall demo day. I noticed investors fall into three general categories:

• Team-driven investors primarily care about the founders themselves: their relationship, what they’ve accomplished prior to starting the company, and why they’re the right mix to tackle the problem at hand. The incubator guys (e.g. Y Combinator, AngelPad) obsess a lot over this stuff, and they’re as well-positioned as anyone to understand, and avoid, the common causes of early death for companies.
• Problem/product-driven investors want to understand the urgency of the problem (“Is this a hair-on-fire problem?”), and how the team intends to solve it. Product orientation seems common among angel investors who made their money as engineers at Zynga/Facebook/Google. These guys believe (rightly in my opinion) that if the problem is sufficiently compelling, and customers get enough value from the solution, that investment and revenue will surely follow.
• Market-driven investors care about the numbers: how many customers, how much revenue from each of them, gross profit, acquisition cost, and churn. Market-driven investors tend to come from finance and banking, and play a large role at later-stage (Series B) funds, where the key question is scalability, rather than founder issues or technology risk.

When trying to raise seed capital, focus on the first two. Most angels and early-stage investors I’ve met believe startups fail because of team and product/market fit issues; they’re far more tolerant of market sizing issues, than, say, lack of a compelling problem, or bad founder chemistry.

I used to think Silicon Valley was crazy for betting on companies without business models, but now I’m not so sure.

(Note: It occurred to me, as I was writing this, that the investors’ concerns form a sort of blueprint for how to start a company. Start with good people, then find a problem, then concentrate on a market — in that order.)

Assume you take a job at a big company. A few months in, you realize your project is a disaster with a snowball’s chance in hell of shipping. Do you

1. Quit the company: burn professional bridges, and leave a black mark on your resume
2. Transfer to another group: kind of like quitting, but looks less bad because you’re at the same company, or
3. Stick it out: see whether things improve while collecting a paycheck and letting your career idle

Faced with this dilemma at Microsoft two years ago, I chose option #1 (quitting). When the ship started to sink, I didn’t pray, I jumped.

An individual’s choice seems highly linked to his risk appetite. Regardless of the long-term consequences, quitting is definitely riskier in the short run.

Idealists tell us to “follow our hearts”. Following one’s heart is romantic, but it doesn’t go over well with venture capitalists, or the parents of significant others.