What Should You Invest In – People or Ideas?

It’s hard to identify an investable idea as an investor because that requires a great deal of industry knowledge, experience and the ability to predict what direction the market is going. And most ideas aren’t unique. The vast majoirty of implemented and successful ideas, were also conceived (in a similar way) by dozens of other people who either failed at implementation or never raised the funding/had the necessary skills to pursue implementation. For these and many other factors, it’s very hard to know what idea is good and more importantly if it will be successful on its own.

That’s why you often hear some VCs and angels say ‘we invest in people first’ or ‘give me a bad idea with a great entrepreneur rather than a good idea with a bad entrepreneur’. The reasoning is that a good idea in and of itself is still a long ways to go from being a profitable and successful business and any successful innovative idea will soon be met with competition by possibly better funded startups or more established companies. And there will be several challenges on a day to day basis that will challenge the founding team’s mental and intellectual capabilities. But a great founding team behind the product that understand the market and has the necessary skills and network, will have the ability to pivot/side step and make small adjustements where needed to put the company in the right position to succeed in the marketplace. A bad founder won’t have the ability to understand that a change is necessary and thus the investor’s funds and the effort put into building an idea by all parties involved will have gone to waste.

But on the flip side, that’s not to say that an investor can just replace the management team in a startup with a group of experienced managers and hit a homerun. When I was working on one of my first startups and being a stranger to the VC way of thinking and operating, I was told that VCs would invest in an idea if they liked it but many times would remove the founder/CEO/initial management team and place their own people. Even back then I was confused by the notion of having a team of young, excited and hard-working entrepreneurs implement an idea successfully and then decide to kick them out in favor of someone with (most likely) large scale company operating experience (a completely different beast) to run a startup. It just never made much sense to me and it makes even less now that I’m on the other side of the table, qualifying which opportunities are worth pursuing and determining where my highest risk-to-reward payoff would be.

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