When I evaluate a potential investment, which is more important?
The answer, of course, is “it depends.”
Generally, I lean towards team. A great team with a good idea can figure out how to get to a great idea or business. But a mediocre or bad team with a great idea will end up screwing it up. Of course, a great team with a bad idea is also not great.
This is not every investor’s philosophy. Especially as companies get larger and are measured on more traditional metrics of growth, revenue, margins, etc, most investors weigh the team as less important. And this is not irrational. By the time a company has gotten to a Series C or later they have probably figured out a viable venture model or not. At that point, the team is still critical, but it is far, far easier to hire new executives, including the CEO.
There are some VCs who just want to see the traction. Their attitude is, “massive traction is rare, but teams are replaceable.” These tend to be later stage investors.
For early stage investment, the team is crucial. Early ideas are literally embodiments of the teams that create them. I love ideas and I love getting to know people and their inspirations. So I guess it is natural that I tend to early stage investment.
My advice to entrepreneurs is surround yourself with the best people you can find that are also great collaborators. Collaboration EQ is generally more important than individual IQ. Research studies seem to show high functioning teams with diverse view points find better solutions than teams with a sole brilliant person or lots of conflict. Of course, sometimes you just want to build a team around a single genius person. But those are rare exceptions.
As an entrepreneur, you want to be in a category ripe for innovation with a team that can innovate, test, and recognize the signals of success.