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Building a Founding Team
Salonie: Hi and welcome to Matrix Moments. This is Salonie. And I am here with Avnish Bajaj, Founder, Managing Director, Matrix Partners India. Today’s episode is about a topic that we are extremely passionate about and one that we based our investment philosophy on: building a founding team.
So, Avnish, what is the ideal founding team size and as a VC is there a magic number that you look for in a founding team?
Avnish: 2.09.
Salonie: 2.09 for those listening.
Avnish: So, Salonie, thanks for having me back. It’s good to be back. And this topic comes up a lot. I have co-founded two companies Baazee as well as Matrix India. So it’s a topic that’s near and dear to my heart. And it often comes up from the founders. So, good to be back to talk about something that’s hopefully helpful.
Well, the answer is 2.09. And the reason it - and you have shared some very good articles with me on founding team, so let’s make sure we include all those links because I think there is a lot of good information in there.
And I think the reason it came out as 2.09 is somebody has done an analysis of all the companies that have been successful and what is the average number of founders or median number of founders. So obviously what that tells you is the right answer is somewhere between 2 and 3. I think that’s the part that should be helpful to the listeners that that’s where the right answer is. Somewhere 2 – 3 is better than 1 and better than 4.
Now the question as to why and we will get into in some of the rest of the questions as well. But, the way I think about it is first somebody gave a very good analogy which is a company is like a baby and a single parent can raise a baby, but two parents is good; three is a bit too much. I think it’s a great analogy actually except 3 is also okay in this case and maybe 4 is a bit too much.
So, I do believe that that piece that’s one way of thinking about it. Second way of thinking about it having been a founder and we will come to complementarities of skill set and stuff but also recognize that it is a very very difficult undertaking building a company. And all the people - hopefully a bunch of the listeners are already entrepreneurs, so they have undertaken that journey and it tends to be very lonely at the top. So just the companionship to me and we will come to all the nice sounding functional reasons to do it. But just the companionship of it, just like in a marriage I think is important.
Salonie: And what would like the top traits be in this companion or partner in terms of like are there any archetypes of profiles a founder should go looking for in a co-founder?
Avnish: So this is where there is no right answer and this is where I would strongly encourage the listeners to refer to some of the articles that you have shared. There is one particular one that I liked which has a pyramid and it says visionary, hustlers, hacker as the three extremes of the pyramid. I think obviously what that means is one founder is a visionary, one founder is a hustler. Visionary setting the big picture. Hustler is getting things done. Hacker is building the systems. Probably an ideal view of the world, but probably doesn’t exist.
The point being made there, which I strongly believe in, is complementary of skill set that people have very very different skill sets that the bring. All of us bring different skill sets to the table. So what I tell founders is think about complementarities not similarities. And this is where the problem starts because we tend to be closer to people who are similar rather than dissimilar.
So, my first venture with Suvir, we were more similar than dissimilar. And we will come to it a little bit in the next one. It worked out great, but it was after the fact that we discovered we had complementarities in skill sets. So, he was more creative. He managed marketing more. I think maybe business development more. I did a little bit more of the operation side, product side, tech side, finance side so and so forth.
But point being that if I had to do it all over again, not in Baazee, but in general, if I had to start a company, I would probably start with a tech co-founder. So, that is important. I am going to make a controversial statement; I would never have equal co-founders. I think it is very important to have a first amongst equals. I have seen teams that have been the most well-gelled - and it’s not as much about ownership. Ownership can be equal, but there has to be a person who is first amongst equals.
And most of the teams that we have backed we encouraged them to say who is going to be that one person that is if things come to a head, whose decision will matter, who will take the final call? Now it’s not to say that it doesn’t work the other way. All I am saying is if I had the perfect world. Now I have seen co-CEOs work really well. And that’s not an issue.
So again I think the point has to be taken to say if you are starting with a blank slate, then what would one do. And so in a blank slate, probably a tech co-founder, probably unequal ownership also if you are the business person, but equal ownership is fine. Decision making who is going to take the final call, I do think is important because businesses go through – and I have seen this in the past where businesses go through ups and downs and if there is a strong different point of view between the co-founders and it’s equal decision making, the organization can get frozen.
My final point on complementarities of skill set is a framework we use internally which is FPBM, founder, product, business, market. We say look for the FPBM, founder, product, business market fit. In our business, we say product market fit a lot. People often don’t think of founder fit with those businesses. So another example of that is what we call thin stack businesses versus full stack businesses. So if it’s a pure tech business, it’s a thin stack business. If it’s a highly executional heavy business, it’s a full stack business.
The reason I am throwing these things out is that there is no right answer. These are frameworks to think through and apply to try to get to a right answer. There will never be a perfect answer. So if I am starting a company that is highly tech focused, I need a rocket science, computer science IIT type co-founder. If I am starting a business that is in financial services, I need a rocket science, risk trained level of co-founder. So the founder product market fit, what type of business are you doing, where are your skill sets.
Another one of the articles you have shared talks about different types of founder archetypes. I think it has 8 or 10. The promoter, the leader – one person may have some of those. You should look for people who have the others. So I think the biggest takeaway is go for complementarities, not similarities.
Salonie: Okay. And what if you are a founder or an entrepreneur in a situation where you have your business idea, the right team, the capital in place, and all other resources are sort of with you except for your co-founder, how do you then go on a co-founder hunt and find the right partner to move on with?
Avnish: Well, it’s a little bit of a chicken and egg. I know what you are asking and I will come to that. I don’t think you would have a lot of that capital and resources lined up without the correct co-founder, but maybe you do. But I think the larger point behind your question is how do you pick the right the co-founder when you are starting out, right?
Salonie: Right, exactly.
Avnish: And given that we have said it’s lonely at the top. Don’t do something alone. We do think people should spend time thinking about co-founders. So I will tell you that I have seen kind of three ways it has happened in the past. One is kind of top down which is what you said. You may not have an idea or you have an idea. But you have an idea that you want to be an entrepreneur; that’s the one idea you have for sure. And now, if you go back to the previous question, in my view if that is the approach you are taking, before you start a co-founder search, I would argue you should have an idea of the business also that you want to pursue because you want to match the co-founder profile with that.
Let’s say you are not there. Let’s say you are just doing a co-founder search. So there are three approaches. One is top down. Ask in your network, go meet people, think about the profile you are looking for, go meet people in that industry so on and so forth. Second is bottoms up. People you know. People who are around you. Think about that where there is a fit. Third is serendipity. You just run into people.
My view, I have never seen top down. I have seen people try to do top down. I think the failure rate is a bit high in top down than in bottoms up or serendipity. Bottoms up in my case, both my co-founders would be a combination of bottoms up and serendipity, and either bottom ups because we knew them, we used to hang out or ran into them and then built a relationship.
So I would say if you are going top down – actually this applies even at bottoms up and serendipity. Maybe more in serendipity and top down because bottoms up, you really know the person. But I do believe that there is a scientific process one should follow in all three cases. The less you know a person, the more scientifically you should follow this process which is to just try to compress the future into the present.
And, if you are going to be spending the next 10 years of your life with this person, you should try to compress that next 10 years into a very very intense “courtship period” or getting to know each other period, which can go over months. Definitely not weeks; months and literally hundreds of hours. And I didn’t have to do that with Suvir because we had hundreds of hours. Rishi and I did that when we started this and we went through scenarios.
And the reality is if it is like courtship, then you are also both always or all three of you are putting your best foot forward. So you have to spend time in different settings, different situations, go through scenarios. It is all well and good to lay out principles. But then you say what if this happens. What if that happens? How would you react? And it’s not because somebody is trying to disingenuous. It’s just because you haven’t thought it through. And then when you start going deep through scenarios, I think you start learning a lot about each other. And for me actually that worked really well.
Spend time getting to know each other’s families, spouses and children. Tells you a lot about how a person interacts with different parts of their kind of ecosystem. Finally – and I know you have a podcast with Tarun on Extreme Referencing. I mean if ever there was extreme referencing, this is where you do extreme referencing. And both have to be comfortable enough. Or again like I said, it could be three to say that we are going to be doing this. And we are going to be asking friends. We are going to be asking this. We are going to be asking people you went to school with. I mean this is as important a relationship as you are going to get to probably second only to your direct family relationships, marriage or whatever.
But again remember this is – marriage is also by choice, this is by choice. A lot of your other family relationships are not. So I think you have to be extremely diligent about this process. And then at the end of it, you have to take a gut call. And in my view, ultimately, we can talk a lot about the science and the physics and the math. And does this work? Ultimately it has gone down to chemistry. And do you feel the chemistry? Can you imagine the worst moments of your life and apart from your family, your wife, would you want this person around you? And if you are going to go through those, well, the lucky ones won’t; most will. And recognizing that it’s lonely at the top, is this the person you want to be lonely with? And I know it sounds a little bit corny, but that’s what it is. That’s what a co-founder relationship is.
Salonie: Sure. Thanks Avnish.
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