Are They My Kind of Leader?

21 Leadership Questions I Must Answer Before Investing

This is the first in a three-part series on how I make investing decisions for follow-on investments. This first article describes how I evaluate the entrepreneur. The second article describes how I think about market timing. The third article analyzes sustainability.


Recently, I was asked to do some follow-on investments. These are companies I invested in, and now they are coming back looking for more money. These follow-on investments always get me thinking more deeply about the business I initially invested in.

Having Second Thoughts

When the entrepreneur is asking for more money, I want to remember the reason I decided to do the deal in the first place. Then I compare my initial reasoning to where they are now. The initial investment is all about vision and promises. The second investment is all about performance and results.

Most importantly, I am always looking for surprises. Good surprises. But I’ve been doing this a long time, and I know all the surprises are not going to be good. Early stage companies are about learning. The more learning or invention necessary, the more investment will be needed.

New Milestones, New Assumptions

When the startup comes out of the gate hitting all their milestones, the decision to invest one more time is easy. Everything is working. The value of the company has clearly increased. I’m thinking, This is a good deal, and I want to at least keep my initial ownership share.

The difficult decision to invest one more time comes when milestones are missed and the assumptions they made are proved wrong. Now they have new milestones based on new assumptions. If I stop investing now, my prior rounds of investment are lost. If I go forward and invest again, I could lose even more money. But if it works, then it will be a terrific investment.

This is the investor’s dilemma.

Here’s how I decide if I am going to invest again. I look at three elements in the deal: people, timing, and sustainability. I’ll write about people here. Later I’ll write about timing and sustainability.

Why People Matter Most

I am a startup investor. In startups, the most important and best predictor of success is the people. And of all the people in the deal, it really comes down to the entrepreneur. So I ask myself, “Is he really who I thought he was when I initially invested?”

We’ve been working together for the last year or so. We have been through the excitement of the initial funding and the grind of getting this company out of the ground. This pain creates stress and conflict. I learn a lot about myself in these situations. I also learn about the entrepreneur.

I ask myself:

  1. Is the commitment still there?
  2. Are they a leader?
  3. Are they an entrepreneur?
  4. Are they true to the values they espouse?
  5. Do I see these values reflected in the people who joined them?
  6. How is their EQ? How do they relate to people?
  7. What is their maturity level?
  8. Have they attracted people even better than themselves to join the team?
  9. Do they value their investors and employees?
  10. Have they asked for help? Do they value investor guidance?
  11. Do they know what I thought they knew?
  12. How well have they communicated good news?
  13. How fast do they communicate bad news?
  14. Do they take responsibility for missing the plan?
  15. Do they learn from the misses?
  16. Are they an inside leader or an outside leader?
  17. Are they relentless in pursuit of the milestones they promised to achieve?
  18. Are they a decisive leader?
  19. Do they make good decisions on strategy, people, and process?
  20. Can they manage people?
  21. Do they value the money I invested?

People Create Value

The entrepreneur is the leader of the people in the startup. If they know how to create value, this startup should be a great long-term investment. These questions help me determine if the entrepreneur will create the value I was initially seeking. If I still believe in them, I’ll check this box toward considering a follow-on investment. But then there is timing and sustainability to consider, which we will look at in posts to come.

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