4 Qualities Venture Capitalists Look for in an Entrepreneur

For venture capitalist Rick Desai, the question boils down more to the kind of person you are than your great idea.

“It takes a lot of interpersonal behaviors” to succeed as an entrepreneur, says Desai, who is also an adjunct lecturer of innovation and entrepreneurship at the Kellogg School. “Some people have those innately. Others have learned them.”

Desai is a partner at the venture capital firm Listen and cofounder of the startup studio Dashfire. From his experience, he describes four crucial traits that he looks for when deciding which entrepreneurs to support.

Demonstrate a Drive That Inspires Belief

Being an entrepreneur means being great at sales. And before you can sell a product to consumers, you have to sell the reality of entrepreneurship to your nearest and dearest.

“Can you convince your significant other or your family to take this big leap into the world of entrepreneurship?” Desai asks. “To give up your 401(k), your health plans, and jump into the non-sexy ramen diet? That takes a lot of conviction.” In short, he says, “the ability to inspire belief is the number-one quality I’m looking for.”

Next, nascent entrepreneurs have to convince their initial employees—and, of course, their first customers—of the value of their enterprise. To get those stakeholders interested in the first place, you have to demonstrate that you are making progress on your own.

The easiest way to inspire belief is to delight a customer.

“It’s far more than just having a technology or a cool design,” Desai says. “it takes a lot of interpersonal behavior, communication, sales effort.”

Don’t Wait for the Money

It is tempting to think of venture capital as the equivalent of a fairy godparent—swooping down in a shower of money to make all the magic happen. Hold the startup together until the VC money lands and your worries are over. But the funding game is highly competitive. Passivity in an entrepreneur can mean you never get considered.“The new normal is not an idea on the back of a napkin,” Desai says. “The new normal is a million dollars in revenue.”

If you are struggling to get to that first million in revenue, Desai says, “it means there may be a market factor that makes the business too competitive for you to acquire customers, or no one wants your product, or you don’t have the chops to do it.”

Desai describes how he was initially approached by the team that founded the clothing company Romphim—they design rompers for men. At that point, they hadn’t figured out their product, their audience, or their e-commerce strategy. Desai was not convinced they had the chops to make their idea into a successful business and turned down their pitch.

But they proved him wrong, in large part because they had a drive to succeed and had tapped into a cultural insight: that men wanted more expressive fashion options.

The team prototyped, recruited fashion-forward ambassadors who made Romphims the talk of the big summer music festivals, and raised $300,000 on Kickstarter.

“They just put their head down and worked—and they continue to inspire belief with a really positive and uplifting spirit,” Desai says.

Understand the Importance of Thinking Small

To Desai, the best startups aren’t the ones that have the biggest ideas, but rather the ones that are able to take a simple concept and execute it very well. From that small, solid offering, big things grow.

“Uber built an app to call a taxi cab. That was the business,” he says. But, of course, that small and focused idea grew into a giant, disruptive company. “Taking on the world of logistics and transportation and real-time—that wasn’t part of the original vision.”

Desai sees a lot of early stage companies make the mistake of assuming that they need capital and the product to get started. In fact, what they need is to start iterating on their singular business idea.

This iteration can include building awareness through ad buys, cold-emailing potential clients on LinkedIn, and using your network to line up meetings with referrals. These steps offer immediate feedback on your business’s proof of concept, as well as how you may want to experiment with the product. It rewards those who understand the importance of thinking small.

“If you do it right, and you satisfy 10, 100, 1,000 customers, many more great things will happen,” he says. “The customers will tell you what they want next. That’s when the fun begins. Now talent wants to join you. Partnerships show up. You have great customers who are demanding new products, new iterations. Those are the best companies.”

Mitigate Risk

Starting a new enterprise comes with unavoidable hazards. In Desai’s view, the best entrepreneurs are the ones who are skilled at mitigating those risks.

At his firms, he looks for people who are either innate risk mitigators or who have learned how to rapidly micro-test their way through challenges or problems. Recognizing the importance of this trait is why Desai has a special appreciation for entrepreneurs who have attended business school. “I hear a lot of pushback on the business-school entrepreneur: ‘they can’t roll up their sleeves, they’re entitled, they expect a six-figure salary,’” he says. “‘But business schools teach students how to mitigate risk. That’s their whole curriculum. As a venture capitalist, if I can find companies that have already proven they can mitigate risk, the decision becomes a lot easier.”

His firm, Listen, for example, has worked with a company called Interior Define, which allows consumers to design their own furniture online. Before Interior Define launched, there was concern that customers would balk at making such expensive purchases without getting to touch or see the final product first.

To mitigate that risk, the company began to make the process of customizing a sofa as comfortable as lounging in one. They started with free fabric swatches and moved into inventory-light guide shops. It quickly became apparent that customers who took swatches or came into a storefront were much more likely to make a purchase.

“We now had a prediction of who was going to buy a sofa,” Desai says. “So we could start investing more in the brand to drive orders for swatches. That turned into a paramount part of the marketing funnel.”