The F Word

What we’ve learned about Startup Founders in the past 10yrs?

By Brandon Shelton (Founder & Managing Partner TFX Capital)

INTRODUCTION

In 2015, we launched TFX Capital to invest in extraordinary Founders, particularly those with US military backgrounds. Our greatest takeaway has been understanding the profound impact of being a startup Founder. This “F” word brings relentless pressure, intertwining a Founder’s legacy with their startup’s success. This pressure is constant, even for those who raise capital, scale rapidly, or have a working concept. We found that Veteran Founders share common strengths and developmental areas with other startup Founders but often exhibit stronger resilience, discipline, and servant leadership.

THE LEADER ORIGIN STORY MATTERS

In the past decade, we’ve seen how valuable a Founder’s life experience is before starting their business. With an average age of 45 when we initially invest, our portfolio leaders have roughly 20 years of professional experience.  Of note, many military and intelligence community leaders begin their service before age 25, a critical period for brain development according to the National Institutes of Health. The military accelerates the development of key execution skills needed for mission accomplishment, making most former military leaders uniquely skilled and resilient in the commercial sector. 

We also learned in 2015 that Veterans represented a relatively small percentage of our population, but they owned and ran millions of small businesses.  In 2023, the Small Business Administration published a report that the number is 1.9M businesses (7% of all small businesses)  across dozens of sectors despite less than 0.5% of our population volunteering to serve. Our challenge was establishing one of the first firms dedicated to replicating this success in venture-backed technology startups.

THE LONG AND WINDING ROAD

Once an individual or team launches a company, their journey can be arduous and lengthy, often taking 7-12 years before an outcome like acquisition or IPO. Many will fail sooner.

The unyielding pressure of being a startup Founder can take a toll on their mental and physical wellness. A 2024 report showed that 88% of entrepreneurs struggle with mental health issues, and 50% report anxiety. Veteran Founders are not immune. Some of our Founders have commented “this startup is way more challenging than being deployed to a combat zone.”  The multi-year journey, well beyond a combat tour length, is the key factor impacting Founders.

A 2023 Pitchbook survey found that 72% of Founders reported a negative impact on their mental health from launching their business. Despite the high failure rates and stress, our Founders consistently demonstrate resilience, discipline, and servant leadership—the traits we’ve sought since our inception.  Their resilience is essential to our pursuit of investment “alpha.”

OUR LEADERS

We’ve assessed 67 Founders/executives across 21 portfolio investments  throughout the due diligence cycle.  We ask the leadership teams to complete the online survey and participate in a team debrief with our Talent Partner Cindi Basenspiler, an ICF and Gallup-certified leadership coach.  Generally, these are multi-Founder teams (2-5 people) with at least one former military or former intelligence community leader in the C-suite.

Today, 70% of our investment rationale centers on the leaders (“jockey”) rather than the product or market (“horse”). We perform leadership reference and criminal background checks, spend time with the team, and conduct leadership assessments. At the outset of our investment, we use the Gallup StrengthsFinder assessment, which measures team interoperability and individual strengths. Our cohort of former military Founders likely represents most venture-backed Founders (non-Veteran) in the US, but that’s hard to know exactly with the data available from Gallup.  That being said, we observed the following “strengths” our Founders over-index on as compared to the general public (20M+ participants that have taken the Gallup Strengths assessment):

Achiever: People exceptionally talented in the Achiever theme work hard and possess a great deal of stamina.  They take immense satisfaction in being busy and productive.^{Gallup definition}

Learner: People exceptionally talented in the Learner theme have a great desire to learn and want to continuously improve.  The process of learning, rather than the outcome, excites them.^{Gallup definition}

Strategic: People exceptionally talented in the Strategic theme create alternative ways to proceed.  Faced with any given scenario, they can quickly spot the relevant patterns and issues.^{Gallup definition}

When considering the relatively small number of people that strike out on their own (as compared to the number of people that say they want/wish to), these natural-occurring talents/characteristics support both the “chicken” and the “egg” of why someone would opt out of working in a more-common corporate environment. Most of the leaders in our cohort of 67 founder leaders both seek and thrive in a different kind of work environment and have less in common with their would-be colleagues at a larger corporation.

On the flipside, the group of founders we’ve assessed to date showed a marked under-representation of naturally occurring strengths/characteristics when compared to the general public noted below:

Adaptability: People exceptionally talented in the Adaptability theme prefer to go with the flow.  They tend to be “now” people wo take things as they come and discover the future one day at a time.^{Gallup definition}

• • Generally, the leaders we assessed showed a lower tendency to go with the flow which is to be expected with Founders. Later hires may need to see more adaptability from their leaders as they acclimate to their new role/mission. Leaders can work on this trait through better listening and incorporating two-way communication into their company culture.

Empathy:  People exceptionally talented in the Empathy theme can sense other people’s feelings by imagining themselves in others’ lives or situations.^{Gallup definition}

• • Generally, leaders whose empathy was a lower naturally occurring strength can compensate through thoughtful hiring and putting systems in place to ensure open communication and feedback with investors, customers and teammates.

There were other differences of over/under-indexed naturally occurring strengths usually at the top (10) of the list, which we continue to review as our data-set increases. For the time being, our role is to increase self-awareness and engage in discussion on possible ways to round out team strengths and dynamics with future hires.

Over time, we’ve noticed that leaders who had spent time in between their military service and starting a company working at a medium to large corporation showed greater resilience and ability to recognize (and execute successfully) pivots in products/services, team expansion and overall operational/people management capabilities. Additionally, the following Founder characteristics and behaviors tended to negatively impact the ability to stabilize and scale their businesses:

• Fixed Mindset – Some leaders, having been rewarded for working hard and achieving goals in the past, may lack the recognition that solid hard-won habits and systems are needed to run a successful business once other employees, partners and investors enter the picture and demands come from many directions.
  • Recommendations for Startup Founders:   When transitioning from structured environments (ie. military/corporations) be aware of the irregular and fluid dynamics of a startup environment; focus on adapting existing strengths and systems to the new environment; ask for help; and remember that it will not get easier:
• Limited Coachability – Leaders who understand various parts of their jobs may need mentorship/coaching to reach mastery and accept guidance/advice.  Leaders who understand and protect their own values tend to last longer and come out stronger.  Self-awareness is essential.
  • Recommendations for Startup Founders: Define and establish new feedback loops for yourself early in your company’s journey.  Your Board and investors generally won’t provide the professional development feedback you need.  Having co-Founders, mentors, and/or an executive coach is important to receive honest feedback often.  Listening will be more critical than ever whereas the temptation is to be in motion 24/7.  Separating the signals from the noise with investors, teammates, and customers will help you make the right decisions more often.
• Suboptimal Hiring – Initial hiring will likely resemble the “two partners in a garage” model, but the quicker leaders begin to hire to complement their skills and specifically for the mission/strategy ahead, the more solid and scalable the team becomes.  For this, self-awareness and humility are critical.
  • Recommendations for Startup Founders: Treat your first 5-10 hires as if they were co-Founders; don’t sacrifice quality for speed; hire for their gaps (marketing, sales, etc.).  Establish professional (but agile) HR processes early, demonstrating that the people at your startup are the most valuable asset.
  • Examples:  Have agreed upon job descriptions/roles and responsibilities, conduct thoughtful onboarding (first 30 days), ensure regular employee communications (standups, all-hands, Founder newsletters. etc.).  Lastly, unite your employees and contractors with the Mission – explain the WHAT and the WHY often.

Understand that team dynamics are critical beyond 3-4 employees and [some] structure is necessary when you reach ~20 employees. Communication, especially when employees are remote, is key to success. This is where self-awareness comes in.  Leaders must understand where they may need help and hire or outsource or augment where they are not comfortable.

FOUNDERS ARE HUMANS – ALWAYS EVOLVING

Entrepreneurs are often drawn to the freedom of starting a business: dynamic changes, quick decisions, and high pressure.  It can be fun, exhausting, terrible, and exciting daily.  But what happens to Founders after 3 years, 5 years or longer of this operating environment?  For some they can start to exhibit traits associated with Founder’s Syndrome (a desire to maintain power and control, unwillingness to establish and follow organizational processes, etc).  Some Founders will adapt and scale with the business.  And some Founders will step aside and hire outside, commercial leadership to drive the business forward.  Assessing how a Founding team will perform in the long run in those early months and years is certainly a difficult challenge for early stage investors.

When we assess a team before investing, we consider potential leader departures or additions, overlapping strengths, gaps, and team balance. Mission-driven Founders, especially domain experts with resilience and discipline from tough environments, offer winning investment opportunities.

HOW TFX SUPPORTS STARTUP FOUNDERS

TFX uniquely assesses businesses and leadership teams before investing. We then debrief the leadership team on their strengths, potential friction points, and organizational recommendations.

Our Talent Partner and advisors support company goals and challenges post-investment through leadership assessments, coaching, team building, organization design, and ongoing employee-engagement monitoring.

TFX’s Talent Network, with experts like Cindi Basenspiler, Dr. Ben Michaelis and CEOx’s Luann Abrams, supports senior leadership development. Our annual Founder Day addresses challenges of being a Founder, encouraging leaders to share and seek help within our portfolio. As companies grow, pivot, or contract (e.g., during COVID-19), our advisors offer continuous support through internal expertise and wide networks.

We are committed for the long haul, remaining interested and responsive for years. We look forward to partnering with extraordinary, domain expert Founding teams in 2025 and beyond.

Onwards and to success!