Identifying Unicorn Founders: Spotting Potential Early On

The Importance of the Founding Team in Venture Capital

Early-stage venture capitalists dedicate significant time to evaluating numerous promising startups. The assessment focuses on factors like market size, the viability of the business model, and the competitive landscape.

However, experienced VCs recognize that long-term success ultimately hinges on the strength of the team and, crucially, the founder(s).

The Challenge of Evaluating Early-Stage Founders

Analyzing a founding team remains the most difficult aspect of venture capital, even after decades of experience. Identifying potential winners among young, first-time entrepreneurs with limited initial traction presents a unique challenge.

Determining who will succeed requires looking beyond surface-level qualities and identifying deeper, more fundamental characteristics.

Lessons from Successful European Startups

At Creandum, we’ve had the privilege of collaborating with some of Europe’s most accomplished startup founders over the past 18 years.

These include individuals like Daniel Ek of Spotify, Sebastian Siemiatkowski of Klarna, Johannes Schildt of Kry, Jacob de Geer and Magnus Nilsson of iZettle, Emil Eifrem of Neo4J, and Christian Hecker of Trade Republic, among others.

Five Key Traits of Unicorn Founders

Through observing these highly successful entrepreneurs, we’ve identified a set of shared characteristics. They consistently demonstrate high levels of energy, a strong work ethic, and qualities like patience, perseverance, and resilience.

Beyond these common attributes, five key traits consistently appear in founders who go on to build unicorn companies – characteristics investors should prioritize when making early-stage investments.

Essential Founder Qualities to Look For

• Energy and Drive: A relentless pursuit of the vision.
• Hard Work: A willingness to put in the necessary effort.
• Patience: Understanding that building a successful company takes time.
• Perseverance: The ability to overcome obstacles and setbacks.
• Resilience: Bouncing back from failures and learning from mistakes.

Acknowledging Areas for Growth

A common perception is that startup founders possess unwavering confidence and a robust aptitude for sales. While these qualities are certainly desirable, truly exceptional founders also demonstrate humility. They possess a clear understanding of their own shortcomings and the potential obstacles facing their venture.

These individuals maintain a persistent desire for learning, continuous improvement, and the expansion of their business beyond conventional limits. They exhibit a level of energy and dedication rarely seen in others.

Successful founders typically engage in thoughtful consideration of critical questions, resisting the urge to immediately adopt the most expedient solution. Evidence of this can also be observed in their commitment to assembling a capable team, demonstrated through strategic key hires. They recognize skill gaps and actively seek individuals whose talents will enhance their own. Above all, they display an unwavering curiosity, both within and beyond their specific field.

The ability to recognize what one doesn’t know is fundamental to constructing a high-performing team. During our initial meeting with Spotify’s founders, Daniel Ek and Martin Lorentzon, in 2006, we were impressed by their mutual challenge, complementation, and respect. The depth of their dialogue and their willingness to push each other are qualities we consistently seek in co-founders.

As investors, we understand our influence on a startup’s success is inherently limited. However, if founders exhibit even a small degree of this characteristic, they are more likely to heed valuable advice during crucial stages of development, ultimately increasing the potential for achieving unicorn status.

Identifying Founders with Unicorn Potential

Founders who achieve significant success typically possess ambitious goals. However, truly exceptional leaders also demonstrate careful attention to detail and financial prudence, especially during the initial phases of their ventures when resources are limited and teams are often minimal.

A more subtle, yet crucial, quality is the capacity for effective leadership. This involves a fluid transition between formulating overarching strategies and addressing immediate operational challenges, adapting this skill set as the business expands.

Within a short timeframe, a founder destined for unicorn status must evolve from a versatile generalist to a manager of talent, and ultimately, a Chief Executive Officer. This requires a “helicopter view” – the ability to seamlessly shift focus between strategic planning and practical implementation.

The Importance of Vision and Integrity

Successful founders maintain a clear understanding of their long-term objectives and company vision. Their initial actions consistently reflect this guiding principle, a true North Star. Observing their interactions with their team can reveal whether founders genuinely embody their stated values.

Effective leaders showcase strong communication skills, alongside clarity, transparency, and unwavering integrity. A review of their past endeavors can provide evidence of a proactive and driven mindset.

Consider Sebastian Siemiatkowski of Klarna as a prime illustration. Sixteen years ago, he initiated a journey to establish what is now Europe’s most highly valued fintech company. As an immigrant to Sweden, he consistently pursued independent projects and launched Klarna at the age of 23.

Adaptability and Scalability

He has since grown the organization to encompass a workforce of 3,500 employees. Throughout this process, Sebastian has remained adaptable, continuously learning, and fostering empowerment among his team members.

While a prospective unicorn founder doesn’t necessarily need to possess all these attributes from the outset, they should demonstrate a capacity for ambitious thinking coupled with pragmatic execution, and an understanding of the principles of company scaling.

Prioritizing Individuals

Exceptional interpersonal abilities are vital in founders, though often difficult to discern in the initial phases. Assessing their capacity to build trust, accurately evaluate, and motivate those in their network – encompassing investors, team members, customers, and collaborators – is key.

A further encouraging indicator is the early development of a distinctive company culture and a cohesive, overarching story. Cultivating a strong culture naturally precedes the attraction, recruitment, and retention of highly skilled individuals within a setting that values dedication.

Early Indicators of a People-Focused Approach

Even within a small team of two to five individuals, observe whether the founders actively discuss culture and its manifestation within the organization. Look for evidence of promising early hires as well.

Successful founders also recognize the significance of continuous talent development and performance benchmarking.

Consider iZettle as an illustration. Their expansion to over 900 employees culminated in their acquisition by PayPal in 2018. Such rapid scaling necessitates a culture capable of attracting and retaining top-tier talent, fostering an environment as previously described.

Jacob and Magnus demonstrated remarkable skill in achieving this.

Continuous People Management

Truly effective founders consistently prioritize their team, persistently question existing norms, and make decisive choices regarding personnel – both in hiring and departures.

They understand that people are the core asset of any successful venture.

The Power of Passion Over Specialized Expertise

Founders launching deep tech ventures or B2B software often possess considerable expertise within their specific fields. However, our observations suggest that this specialized knowledge isn't always a prerequisite for creating a unicorn company.

We’ve consistently found that genuine passion frequently outweighs industry knowledge as the primary force propelling a team forward, navigating both successes and challenges.

Disruption Often Comes From Outside Perspectives

Interestingly, certain industries benefit most from disruption initiated by individuals without extensive prior experience. A fresh, optimistic outlook can be incredibly valuable.

The ability to simplify complex products or processes is often easier for those approaching an industry with a “naive” perspective. Examples like Kry (“eliminating wait times in healthcare”) and Vivino (“instant wine information and delivery”) demonstrate this principle effectively.

Vivino: A Case Study in User-Focused Innovation

Heini Zachariassen, the founder of Vivino, was a dedicated wine enthusiast but lacked formal professional experience in the wine industry.

His motivation stemmed from a personal need – the difficulty of selecting a good wine. He approached the problem from a user’s standpoint, focusing on solving his own frustration, which ultimately led to the creation of Vivino.

Exceptional Fundraising Skills

A founder's proficiency in fundraising stands out as a key characteristic for investors to identify. This ability demonstrates strategic thinking, alongside the capacity to inspire, influence, and effectively persuade others.

Therefore, observing a founder's success in securing funding serves as a strong indicator of potential. It suggests a team capable of not only attracting investors but also effectively engaging partners, employees, and customers.

Key Indicators to Observe:

• Founders demonstrate ease and confidence when presenting their vision to investors, regardless of immediate funding needs.
• They possess a talent for articulating the problem, proposed solution, and market opportunity in a clear and persuasive manner. This skill is equally vital for recruitment and customer acquisition.
• They are adept at fostering competitive interest and generating a sense of urgency among venture capitalists to optimize funding rounds and attract leading firms.

Christian Hecker, the founder of Trade Republic, intentionally operated his company in a discreet manner for four years prior to seeking investment. Following our lead investment in their Series A round in 2019, Hecker successfully secured one of Germany’s largest Series C rounds, valued at $900 million, elevating the company’s valuation beyond $5 billion.

It’s unrealistic to expect founders to excel in every aspect of these traits. Recognizing this, we acknowledge that surprises can occur, with founders initially perceived as risks ultimately achieving remarkable success.

Conversely, some founders who initially made a strong impression have not always reached their full potential. This underscores the importance for both founders and investors to cultivate an understanding of these qualities – founders should self-assess, and investors should develop their ability to recognize them. Identifying even two or three of these traits in a founder could signal the presence of a future unicorn leader.