Venture capital firms weigh various factors when evaluating a company — and relationship red flags can be a dealbreaker for some.
VC cofounder Jeff Rosenthal said in an interview with Business Insider that “breakup risk between partners” is a top concern for institutional investors. It’s “the thing” they drill into the most, Rosenthal said, the cofounder of CIV, an investment platform that backs and builds tech companies like The Nuclear Company and Verse.
“We like to think about partnerships and ventures on 10 to 20 year time horizons,” Rosenthal said. “So picking the right people to build with is likely the most important decision you will make in your career.”
In 2016, the National Bureau of Economic Research surveyed 885 people from 681 venture capital firms and found that the “management/founding team” ranked as the top factor in investment decisions. It was cited by 95% of firms as an important consideration, with 47% naming it as the most important factor.
In creating CIV, Rosenthal teamed up with his best friend, Patrick Maloney, and longtime investor Abhijoy Mitra. While he and Maloney had been close for more than a decade, Rosenthal said that their friendship alone wasn’t a reason to start a business together.
Rosenthal said he and Maloney tested their compatibility by outlining their vision for the business, and they did it all in writing.
“We wrote each other back and forth like pen pals to make sure that nothing was lost in translation,” Rosenthal said, adding that when you write things down, “you can be crystal clear.”
Rosenthal said they asked each other questions, including what time they plan to arrive and leave the office, and what they expect for the organization.
“We wanted to make sure that we were aligned in our vision for the type of business we would build, the type of culture we wanted, our expectations of each other,” Rosenthal said. “And we didn’t wanna leave anything unsaid.”
Some of that discussion extended into what they wanted for their future. Rosenthal said they wanted to understand how they envisioned their lives at 80 years old when they look back at their friendships, families, and the people they built their business with.
Rosenthal said one of their collaborators said success looks like “hanging out at each other’s children’s weddings.”
“Which we love,” Rosenthal said. “Like, that’s exactly the way that we like to build.”
Rosenthal said it’s important to take the process of choosing a business partner “really seriously.” Beyond writing back and forth, the cofounder said it’s also important to talk to a potential partner’s former employers, employees, and business partners. Talking to those people will help you understand exactly how someone operates and determine if you’re compatible as business partners.
“It’s worth doing the extra step,” Rosenthal said. “And you don’t have to do it secretly.”
When it came to bringing on Mitra as a cofounder, Rosenthal and Maloney spent time working with him and assessing how the three of them collaborated. Rosenthal said Mitra was an “operating partner and close collaborator” for roughly 18 months before joining as a cofounder. During that time, he was CIV’s no. 1 resource in designing its investment process and investment committee structure.
The time gave the three of them the opportunity to “get to know each other beyond our social relationship” and figure out whether they worked well together and aligned in terms of values, culture, and priorities.
“It became clear that our combined strengths formed a powerful synergy, leading to his joining us as a co-founder,” Rosenthal said.
