In the high-stakes world of venture capital, picking the right startup founder can mean the difference between a billion-dollar exit and a total loss. No firm wants to back a firm that blows up 12 months later; nor do they want to be one of the 40 investors who said no to Jeff Bezos when he was raising money to start Amazon in 1995. To try and avoid these mistakes, VC firms are increasingly turning to psychometric testing to bring more science to the art of investing.

At EQT Ventures, which invests in early-stage tech startups, personality tests have become a key tool to inform its investments, which typically range between €1m ($1.1m) and €50m. Every founder is now required to take a psychometric test, in addition to the usual interviews and other forms of due diligence, before an investment committee’s final decision. The point, according to Polly Barnes, EQT’s Tech Talent Operating Partner, is to separate the run-of-the-mill entrepreneurs from the elite cadre of founders, those who can build a product, lead a team, scale a company and keep it on track for a successful exit. “This test looks at whether you would go the full way,” she said in an interview.

EQT’s test, dubbed the Founder Six, scores founders on six traits:

• Lightning focus
• Resilience
• Magnetic leadership
• Fearlessness
• Insatiable curiosity
• Honest self-awareness

It is possible to do the test yourself and see how you score, although there is some significant nuance behind the results and how the firm uses them to make decisions. Barnes describes the test as just one part of a “framework” that helps EQT every time they invest.

Understanding founders’ personalities

The ultimate decision to invest or not always rests with the investment committee, and the testing comes towards the end of a long process. “There’s a million different selection processes before we’d even consider investing,” said Barnes. Founders have to get past those hurdles first.

According to Björn Elowson, an adviser and licensed occupational psychologist at EQT, the tests are only one part of understanding the founders’ personalities. Elowson conducts the tests and also carries out one-on-one qualitative interviews with candidates. He says measuring founders’ personalities is not just about plotting points on a graph but about understanding how their personal story might interact with the data. Together, “it comes alive,” he said, adding, “You have the data points in the spreadsheet, and I can see a bunch of stuff with it, but then if we can talk to you, then we know what it means.”

The personality test and the traits it highlights are also based on a statistical analysis of a very large dataset. Carefully and patiently built over the last five years, EQT combined it with tens of thousands of test results of founders conducted by Oxford University, data on commercial success metrics (successful IPOs and exits), and test results for non-founders and failed founders to compare it against. As the dataset increases over the next five years, it will become an even more effective predictive tool since it will include more successful exits and IPOs.

Why only some founders succeed

Barnes and her team believe their process could explain about one-fifth of why some founders succeed and some don’t. “When you talk about performance in general, you can say that we can explain 20 percent of the variance just based on psychometric results,” said Elowson. “This is an absolute untapped gap if you sit in a fund. An untapped 20th percentile of contribution to success at any investment stage,” said Barnes.

The predictive power of this psychometric testing framework could significantly contribute to any VC firm’s bottom line. “A modest improvement in predictive accuracy [of personality] could offer meaningful financial advantages in venture capital,” said David Stillwell, a professor at the University of Cambridge’s Judge Business School. “If a VC firm is funding ‘X’ number of businesses, then a two percent improvement in what they do may translate to a lot of money,” he said.

For now, the main benefit to EQT has been avoiding at least one potentially wasted investment. “I just recently had a startup team [who had] the classic early founder traits. They had product-market fit, prior experience, some tailwind in the market, high investor confidence, and 12 months later, their relationship has imploded,” she said. “They [had] not scored highly enough against a couple of the personality traits that we know to be successful… and we [had] not invested in them,” she said. Bullet dodged.

The testing may not make such a material financial difference to the founder, says Stillwell, but there are other advantages for them too, because it helps them build a complementary team, which is more likely to succeed. “This can also be used by founders and the founding team [to] see what traits are key strengths,” said Elowson. For this reason, founders rarely refuse to take the test. “The people who refuse, I wouldn’t consider them to be high performing, because somehow they’re afraid of something,” said Barnes. “At the end of the day, the really high performing founders are not frightened of this, because they’re spending all their time thinking about how they can get better,” she said.

Barnes cited Sequoia Capital and Andreessen Horowitz in Silicon Valley as two examples of larger VC firms moving towards using similar, more scientific models for selecting founders. Smaller and newer VC firms sometimes use less sophisticated personality tests – perhaps with less predictive power – to inform their decisions.

Testing founders scientifically

So why doesn’t every VC firm do this? The complexity of the data analysis and the patience required to collect so much data are some of the reasons the practice is not more widespread, says Barnes. “It’s taken five years to cultivate the data to prove this,” she said. A sceptical attitude towards talent in the investment community more widely is also a problem, says Barnes. “[Many investors] view talent as the thing that you do after things mess up, rather than something foundational to success that you can predict and start to build on,” she said. “That’s a mistake we’re making as investors.”

Barnes hopes that EQT’s work can act as an example for the wider investment industry to test its founders more scientifically. Even though a startup’s success will always hinge on an element of timing and luck, by trying to more deeply understand what makes successful founders tick, firms like EQT aim to shift the odds.

In an industry where billions of dollars are at stake, even this slight edge can make a big difference. And all founders need to do is fill out a simple questionnaire.