Opinions expressed by Entrepreneur contributors are their own.
According to many of my colleagues from the venture capital industry, one of the core factors in evaluating startups will always be the human aspect — the personality, character and abilities of the founder. In preparing this article, I found some statistics: In a 2020 survey of 885 institutional venture investors, 95% of respondents cited the team as the deciding factor in investment decisions. Interestingly, 47% of them prioritised team quality over strategic alignment, product, business model, market or the ability to create unique value.
From my experience, even the most brilliant idea can fail catastrophically if led by a toxic founder. No technology, market opportunity or promising niche can save a company if its internal atmosphere is poisoned by manipulation, an inability to listen to colleagues or a refusal to take responsibility.
Below, I’ll share how we, as venture investors, try to spot these warning signs early. I’ll answer the question, “What do venture investors pay attention to?”
Related: Founder Mode Can Fail Your Business — Lead This Way Instead
1. Won’t listen and accept criticism
One of the first red flags for me is how a founder reacts to constructive feedback. Often, C-levels who appear very confident initially turn out to be unable to accept or implement external advice. Thinking about the short term, this confidence may inspire trust, but in the long run, it can turn into stubbornness and an unwillingness to adapt.
The result? Pretty clear! A demotivated team, growing distrust and internal startup issues being ignored or justified—a combination that almost always leads to internal conflicts and failure.
2. Refusal to admit mistakes
Failure is a very normal part of business — what matters is how a founder handles setbacks. If they blame colleagues, search for scapegoats or ignore problems altogether, this is a serious risk.
A leader who cannot learn from mistakes will struggle to adapt to market changes. Many startups with strong technological foundations have collapsed simply because their CEO (or Founder) refused to acknowledge mistakes or allow open discussions on shortcomings.
Related: 2 Ways Founders Sabotage Their Own Success — and How to Fix It
3. Can’t inspire a team
I always make it a priority to speak not just with the founder but also with their team, because employees often see the real leadership style, not just the public persona.
If I see complaints about micromanagement, distrust or constant criticism without constructive solutions, that’s a ginormous red flag. A good leader should motivate their team, encourage creativity and delegate effectively, all while remaining engaged and accessible. Period.
4. Leadership style
Investors value transparency and clear decision-making – this is not something new. “Toxic” founders or C-levels often centralise all control, restrict access to critical information and block employee initiatives. This causes an extremely unhealthy work environment where people are afraid to be vocal about new ideas or take responsibility.
In the near future, such rigidity stifles innovation and adaptability — two essential qualities for an early-stage startup.
Related: How to Identify and Handle a Toxic Leader
5. Poor reputation
Now it is easy to quickly examine a person’s digital footprint. I pay attention to how a founder behaves on social media, what former employees and partners say about them, and what mentions and reviews are readily available in the public domain.
Sometimes, this type of background information is harder to gather than formal references, but with a thorough approach, it can provide valuable insights into what to expect from a person in the future.
Character over profitability?
We operate in a high-risk environment, where products and services are often unproven in the market. This means that additional risks — especially those related to human factors — must be identified as early as possible. As we can see, a “red-flagged” founder can destroy corporate culture, negating the advantages of even the most innovative product.
Investors also assess a founder’s ability to raise future funding rounds and scale the business. Even if a startup is currently promising, a low-quality leader can make it difficult to attract follow-on investments. A founder’s reputation, communication skills, ability to respond to market demands and overall decision-making approach are crucial in determining whether a company can sustain growth.
That might sound unprofessional, but lots of the experts I know compare the relationship between a venture investor and a founder to a marriage. Before investing, both sides need confidence that they can collaborate for years to come. If a “groom” (in this case, we talk about the founder) is pretty arrogant, refuses to acknowledge mistakes and disregards differing opinions, then the partnership will likely be problematic — or even disastrous.
People matter more than numbers
From my own experience and years of work, I have learned that a toxic founder is always a red flag. A leader who cannot handle feedback or create a culture of trust will inevitably struggle to manage conflicts, potentially leading to the collapse of the entire company. On the other hand, openness to dialogue, flexibility and self-awareness are strong indicators that a founder deserves a chance.
This is how it is: when we invest, we are ultimately betting on people — on their ability to lead, face challenges and inspire results. A startup’s survival and success depend not just on financial performance, but also on the strength, innovation and cohesion of its internal culture.
The post originally appeared on following source : Source link
