As a startup founder I found many facets of the venture capital system frustrating: the lack of accessibility of investors, the difficulty of knowing which ones my company was a strategic fit for, and the general unwillingness to invest in the unfamiliar. Of the three, that last bothered me the most. Investors disproportionately placed their bets on people with more experience, who knew the right buzzwords to say at the right time. Perhaps even more frustratingly, they were far more likely to invest in founders who had gone through the startup journey before. I understood that experience is a way to mitigate risk, but why should I be punished just because I was young and hadn’t started a company before? That didn’t detract at all from the quality of my company.
I wouldn’t go so far as to call my founder self naive, but my perspective has certainly shifted as I’ve settled into the venture capitalist role. I still believe many of the things I did as a founder: many VC’s really do make themselves too hard to access for entrepreneurs and are too scared of getting outside of their comfort zone. However, on the matter of first-time vs. repeat founders — at least — I have a much better understanding of the investor bias.
I spent a fair amount of time on Quora this weekend answering questions. Here are some of them from seemingly prospective or new startup founders:
- How can I create a successful start up in Silicon Valley with $100,000 initial capital?
- Why do many tech founders need funding from venture capital?
- How do I convince investors that my startup is worthy if I really believe in it?
These are all reasonable questions on some level. But none of them instill a whole lot of confidence in an investor. They’re just not the types of questions that an experience founder would ask, because that founder has learned the answers to them the hard way: by knowing that $100K will barely buy you ramen in Silicon Valley, that getting anything done in the business world takes money, and that your own faith in your startup is nowhere near all it takes to convince investors to place their bets.
My founder self didn’t fully appreciate how scary a first time founder can be to an investor. The first time founder is an unknown quantity… sure, they can be the next Zuckerberg; but they’re far more likely to burn through every dime they’re given with nothing to show for it.
So how much does being a repeat founder matter? I could point you to some of the good data hiring around the internet on that advantage: it’s stark. But you can certainly argue that’s a self-fulfilling prophecy: investors like repeat founders and give them money, which makes them more likely to be successful.
So instead, let me tell you what it looks like from a VC’s perspective in three different scenarios:
- A first time founder reaches out to my firm via e-mail with a pitch deck. These decks are often ignored, but I try to do my best to at least look at each one. Even if I see a good one, I know it’s an uphill battle to try to get any of my fellow investment professionals interested in a cold lead. It would take 2–3 hours of good work on my part to get a VP or Partner to even hop on a call with them. Unless your pitch is incredibly compelling I’m going to reply quickly with an apology and a firm “no”.
- An experienced startup operator decides to start their own company. They’ve never founded one before, but they’ve at least worked at a couple of good ones and have good connections in the community. When it comes time to get some funding, they reach out to their connections at my firm. The connection (often a VP or Partner) is happy to hop on the phone and hear the pitch. If it’s a good one, the investment professional will tee up the investment to the broader team, happy to have an experienced founder from the community to bet on.
- An experienced founder with a previous multi hundred million dollar exit decides to start a company. They let a few of their friends know, including a partner or two at my firm. Excited and knowing that they don’t have long, the partners quickly work to understand if the founder is looking to raise money and how much. Hoping to preempt the other investors they know will want in on the deal, the partners make sure the rest of the group is on board and ready to cut a check as soon as the founder has figured out what they want to do.
That last case might be a little hyperbolic, but it’s not far from the mark. Venture capitalists really like experienced founders with previous successful exits under their belts. They have their reasons, some of which are good and others of which might not be. At the end of the day, those reasons don’t matter to you as a founder. You just have to be aware of what’s happening on the other side of the closed door so that you can make the most of your situation.
Hacker Noon is how hackers start their afternoons. We’re a part of the @AMIfamily. We are now accepting submissions and happy to discuss advertising &sponsorship opportunities.
To learn more, read our about page, like/message us on Facebook, or simply, tweet/DM @HackerNoon.
If you enjoyed this story, we recommend reading our latest tech stories and trending tech stories. Until next time, don’t take the realities of the world for granted!