In the VC community, there’s an ever-ongoing debate about if the business idea (=the horse) or the team (=the jockey) matter most.

I would say that the most common viewpoint is that the team is more important for several reasons:

  • A great team can make also a mediocre idea successful or they will come up with a new more successful one
  • A mediocre team can mess up even a great idea
  • As markets change (and they do), a great team will adapt to the required changes

However, when Steven Kaplan (one of the leading researchers on private equity) and his research team studied VC-financed firms from early business plan to initial public offering (IPO) to public company (three years after the IPO) they found that on the margin, you should bet on the horse.

Why? First of all, the study showed that it rarely happens that a good team is successful with a poor idea. Secondly, it showed that you can have a good idea and a poor management team and still end up winning (VCs change management teams frequently). In other words, a bad management team does not necessarily kill a good idea, but a bad idea is rarely overcome by a good management team.

Personally I think that in early-stage venture you need to bet on both. The idea has to be good enough and it needs to be in an interesting enough market. Also, if the idea is not very good, it says something about the team as well. But the earlier you invest, the more the jockey matters. In the early stages, a good idea is only a rough diamond that needs polishing. It is hard to recruit new management in an early stage and get the same commitment and hard work as from founders. Also, no idea or product sells itself so you need a great team that can sell the idea or product to customers, employees, advisors, and investors.

Link to the study