At Charles River Ventures, we seek to support founders who can build foundational companies in their respective industries and, in so doing, have a huge impact on the world. Over the last 40 years, 15 funds, 70 IPOs, and 100+ M&A events, we have been fortunate to get to know thousands of talented entrepreneurs. We know that high-impact companies are able to constantly face adversity and navigate changes in markets, technology and competition over extended periods of time (years – not months!). The key to this capability is outstanding founders. That is what drives our business.
It is also one of the greatest mistakes that venture capitalists make. A false read on a founder, or a founding team, has cost us more in missed opportunities than almost any other decision in our business. And when we find amazing founders we support them through thick and thin. Just this summer, David Sacks sold Yammer to Microsoft for $1.2 billion in cash (CRV was the largest investor). The story that is less often told is that my partner George Zachary had also invested $10 million+ in David’s prior company, Geni, that did not work out as planned. However, despite this first outcome, George still had a ton of conviction to invest in David again before Yammer ever got any meaningful traction.
My point is that our history has shown us that investing in early product/market fit can create a false positive about a company which can be a big mistake. Similarly, so can reading too much into the lack of early product/market fit. Great companies have to continually adapt and be willing to take risks. And while we work our asses off to help, ultimately we rely on our founders to make the right calls in navigating their respective markets.
As such, we spend a tremendous amount of time at CRV getting to know founders and evaluating founding teams. We have to do this, because a majority of our investments are in founders raising venture capital for the first time. They are not known entities. Internally, we call our founder analysis FQ or the Founder Quotient. The Founder Quotient is an assessment of founder strength and founder/company fit. Similar to an EQ or IQ test, but for founder strength (hence FQ).
The way we measure FQ has been refined over the years. I could write a book about each of these factors. For now, I will share a high-level list of attributes we look for and weigh, in different ways, in our FQ:
What other factors do you think we should look for in determining FQ?