Heads up, startup founders: These red flags spook early stage tech investors

When investors assess a potential startup, they examine the business model, the total addressable market, the competitive moats, and many other factors.

But especially for early stage companies just getting off the ground, investment decisions often hinge heavily on the founders themselves.

A trio of Seattle venture capitalists shared insights last week on panel discussion at Founder Day, an event hosted by Seattle-based investment firm Graham & Walker to help train early stage founders.

They offered pointers on founder characteristics and behaviors that give them pause when considering an investment. The discussion was moderated by Grin Lord, founder and CEO at Seattle startup mpathic.

Lack of growth mindset: Founders who are unwilling to listen to feedback or appropriately adjust their thinking are a no-go.

• “Obviously you have to have your own opinions as a CEO and as the founder — you’ve got to stand your ground when you believe in something,” said Sabrina Wu, an investor with Madrona. “But if you’re not willing to take advice and listen, then that’s often a red flag for sure.”
• Jason Stoffer, partner at Maveron, said founders can be incredibly difficult to work with — and sometimes that’s OK. But he draws the line if they can’t adapt to facts or listen to good advice from others.

Customer obsession: Wu also said it’s concerning when founders don’t think deeply enough about the customer.

• She said it’s a concern if founders are “too siloed in their thought process and not thinking beyond that.”

Storytelling: Aviel Ginzburg, general partner at Founders’ Co-op, said he’s turned off by unremarkable pitches.

• In fact, he doesn’t mind bad storytelling. “Maybe there’s something here — you’re so inside your head, you have such a unique perspective in the market,” he said. “But if you’re just like ‘meh’ — I can’t work with that.”
• Ginzburg, who helped run Techstars programs in Seattle, said he noticed a similar pattern when working with accelerator startups. “The ones who came in that were just talking gibberish, you could help them. And the ones who came in, they never needed you, those were the successful ones,” he said. “The ones who were right in the middle just never made it.”
• Stoffer added that he looks for founders who can fluidly switch between visionary storytelling and detailed operational thinking.