Reva Seth reports in Fast Company:
“High-EQ founders are more effective leaders and better able to scale their leadership as their companies grow and evolve which translates into better returns.” Founders with high EQ tend to be great listeners, with the ability to turn criticism into feedback (and) recognize their persistence may be veering into tunnel vision. “A leader with strong EQ can hire people to complement their skill set. Someone low in EQ will never be able to attract, retain, and motivate high performers and will have difficulties scaling.”
When you’re pitching investors, you need a great product and a great story–that much is a given. But those aren’t the only things venture capitalists are looking for. Just as emotional intelligence (EQ, or EI) has steadily crept to the fore in hiring, it’s also “a critical part in the process that we go through when deciding whether or not to invest in a company,” says Janet Bannister, general partner at Real Ventures. As Bannister sees it, “A leader with strong EQ can hire people to complement their skill set and cover for areas where they are weak. However, someone low in EQ will never be able to attract, retain, and motivate high performers–and therefore will have huge difficulties in scaling a company.”She isn’t the only VC who’s thinking this way about sizing up founders’ emotional intelligence. Here are a few key questions that seven other investors like Bannister typically ask to assess entrepreneurs who pitch them for funding.
How Often Do They Consult With Others?
David Greenberg has run the numbers on over 130 investments that his firm, JMI Equity, has made over the last 25 years, and he says one pattern is pretty clear: “High-EQ founders are more effective leaders and better able to scale their leadership as their companies grow and evolve–which translates into better returns.”
Concurring with Bannister, Greenberg, who’s a general partner at JMI, has found that emotional intelligence in effective startup CEOs “starts with self-awareness, meaning they have a good handle on their own strengths and weaknesses,” but it doesn’t end there. As a result, Greenberg explains, “they’re not afraid to ask for help, are open to ideas, are good listeners, and empower other executives on their team.” In other words, one shortcut for assessing founders’ emotional intelligence is to look for how well and how often they interact with their teams.
Laura Lenz, vice president of investments at Generation Ventures, agrees, adding that high-EQ founders are always asking questions, using their team members as a critical sounding board. “Do they encourage their management team to respond to questions in diligence or around the boardroom table? A founder should demonstrate a strong conviction, even a healthy dose of ego,” she points out, “but they cannot overdo it.”How Do They Inspire And Encourage People?
“‘A’ players want to work for a founder that gives credit where appropriate in good times, and doesn’t place the blame in challenging times,” says Michelle McBane, investment director at the MaRS Investment Accelerator Fund. This helps attract top talent and keep them around.
“Successful founders play well with others, inspire and influence people positively, communicate well, and manage conflict productively,” McBane continues. One clue to how well entrepreneurs perform at each of those things is in how they praise their teams’ accomplishments–and not just during the fundraising stage, when founders are careful to polish everything up to a high gloss, but over the long term. “We take the approach outlined by Mark Suster [in a 2010 post for Both Sides of the Table], to ‘Invest in Lines Not Dots,’ which speaks to our due diligence process of getting to know a founder and seeing how they think and build their business over time,” says McBane.
And indeed, playing well with others and knowing how to motivate people over time requires the ability to stay cool under stress–one crucial hallmark of emotional intelligence.
How Do They Handle Tough Questions?
So it’s no surprise that some VCs like to turn up the pressure a bit. “We ask very hard questions to assess the viability of the company,” says Eva Lau, managing partner and cofounder of Two Small Fish Ventures, “but also to observe the founders’ EQ when challenged.”
“Often business or product ideas become like babies to the founders,” Lau points out, “and so criticism can be very uncomfortable or upsetting. But from my experience, founders with high EQ tend to be great listeners, with the ability to turn criticism into feedback and push themselves out of their comfort zones.” So like any good VC, Lau likes to poke for holes in a founder’s strategy–not just to make sure they’ve got their bases covered, but to see how they handle the critique. The successful founders she invests in, says Lau, “can put their emotions aside and really listen to what the other people have to say.”
Can They Stay Flexible Without Losing Focus?
“Passion and persistence are key areas for us,” says Kent Thexton, managing partner at ScaleUP Ventures, a $100 million fund targeting early-stage technology companies. Since the startup experience can be lonely and emotionally challenging, Thexton believes that “having solid passion will help keep [founders] focused through tough times.” Of course, every VC wants the entrepreneurs they back to be passionate and focused, but like McBane, Thexton looks particularly at how founders harness their passion to motivate. After all, he points out, it’s “contagious, and is often what inspires other cofounders [and] teammates to double down and work toward the common goal.”
At the same time, Thexton continues, passion needs to be “matched with the ability to let go. Many of the best businesses pivot into a winning model,” so the most emotionally intelligent entrepreneurs recognize the warning signs their persistence may be veering into tunnel vision. “Founders can’t be so fixed to their original idea that it blinds them to trends and feedback. It’s critical that they start off on their startup journey ready and willing to adapt.”
What Type Of Team Have They Assembled?
Some venture capitalists have to rely on founders’ personality traits and experience more than the details of their products, which ratchets up the value of emotional intelligence even further. As Reshma Sohoni, managing partner and cofounder of Seedcamp, explains, “At the stage we invest, there isn’t much to assess in terms of traction and financials. It’s really about assessing the core founding team’s EQ.”
According to Sohoni, this usually covers three areas: “[founding team members’] interplay with each other, how they think and work through their dialogue with us, and how they will be perceived by their users [and] customers.” These dynamics are crucial, she adds. “What we are ideally looking for are teams rather than individuals, and for there to be comprehensive and complementary skills within that early founding team.”
Jim Orlando, managing director of OMERS Ventures, has a similar formula. “Sometimes one or more individuals are in fact low on the conventional EQ scale,” he concedes, adding that “clearly there are famous founders that fit this mold.” But that doesn’t automatically disqualify a startup from funding in Orlando’s book. “In cases like this,” he says, “I try to ensure that the others on the management team have both worked with this individual constructively in the past–and so are not a frustration risk–and can contribute to balancing the picture.”Ultimately, when venture capitalists speak about emotional intelligence, what they’re really assessing are founders’ people skills in an ever-changing, high-pressure environment. Those who can develop and maintain constructive relationships over time, through all the stresses of startup life, are more likely to gain an investor’s trust–and money–than those who aren’t.
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