Sizing Up a Startup? Check Out the Founder
The following article was written by Ale Breuer, adjunct professor of entrepreneurship at the University of Chicago Booth School of Business, and originally published in Crain’s Chicago Business on December 16, 2024. Read the original article.
Startup success is often gauged by metrics like growth, revenue and market traction. Yet one of the most critical, and frequently overlooked, determinants of a startup’s success is the founder.
At the early stages of a startup, the founder is the single most important factor influencing success. However, traditional venture diligence rarely delves into understanding the founder on a human level. This omission leaves a critical gap in how startups are assessed and supported. Founders are not machines; they are individuals with vulnerabilities, emotions and limitations, all of which directly impact their ability to lead, build and innovate.
Entrepreneurship is an inherently high-stakes endeavor, demanding resilience, emotional regulation and the ability to navigate ambiguity — all of which are just as important as functional expertise. Despite this, venture diligence remains predominantly focused on the business opportunity: market potential, competitive advantages and the team’s functional expertise. Rarely do investment memos explore founder motivation, emotional health or capacity for sustained grit, even though these qualities correlate strongly with startup success. Recognizing this gap, integrating founder diligence into venture diligence cycles can offer a more holistic view of a startup’s potential.
Evaluating a founder extends beyond assessing their professional skills; it requires delving into the deeper motivations, emotional triggers and behavioral patterns that shape their actions. Founders may be driven by various internal desires, such as a need for validation, a pursuit of power and status or a strong inclination to be liked. By asking targeted questions to uncover these underlying behavioral patterns, investors can gain critical insights into a founder’s capacity to navigate the unique challenges of entrepreneurship. For example, asking questions that evaluate a founder’s willingness to reconsider long-held beliefs can reveal an openness to growth and change. Understanding the role that feedback and recognition play in sustaining motivation can reveal key insights into a founder’s leadership style, decision-making processes and their ability to maintain resilience during challenges.
Equally important is assessing emotional intelligence. How does the founder demonstrate empathy in their interactions? Research shows that empathetic leaders are better equipped to build loyal and high-performing teams. Founders who can forge connections based on trust and understanding often foster stronger organizational cultures, which is a key ingredient for long-term success.
Supporting founders as humans, not just CEOs
Founder diligence doesn’t end in the data room; it’s a gift that keeps on giving. By understanding the emotional and psychological profile of a founder, investors can tailor post-investment support to their specific needs. For instance, a founder with a strong need for validation may be more likely to subconsciously prioritize vanity metrics over the true drivers of a business or surround themselves with “yes” team members who affirm their decisions. This can inadvertently foster a culture of homogeneous thinking and discourage critical analysis.
An investor who recognizes this tendency can ask targeted questions during check-ins to help the founder identify and address these challenges. By improving the founder’s self-awareness, the investor can play a pivotal role in mitigating these pitfalls, ultimately accelerating the startup’s success. Such personalized support helps founders build the stamina needed to navigate the turbulence of entrepreneurship. When founders feel supported as humans — not just as CEOs — they are more likely to lead with confidence, make better decisions and cultivate healthier team dynamics.
Ultimately, founder diligence disrupts traditional portfolio management in truly meaningful ways. By considering both the business opportunity and the human element, investors can foster an environment where more startups have a chance to succeed.
This holistic approach doesn’t just yield better business outcomes. It accelerates innovation and elevates the entrepreneurial ecosystem to an unmatched level.