Founder matching: Why VCs invest in people of a similar type

Photo credit: Akson

When entrepreneurs approach VCs, they often try to match their company with the sectors a VC has invested in the past.

That’s rational. The investor likely knows more about the sector than the next person and theoretically is inclined to invest in that sector again.

But I’ve found that this doesn’t always work.

Often, a VC that has invested in a particular sector has a particularly high bar for their next investment in the same space. Once you’ve gone deep in an area, you’re exposed to all the non-obvious challenges and hardships associated with that market segment, which makes you very, very pessimistic and picky.

Often, a VC that has invested in a particular sector has a particularly high bar for their next investment in the same space.

Sometimes, it’s easier to invest in an area where you have some knowledge but don’t know all the gruesome details — after all, it’s nice to have some level of ignorant optimism.

There are quite a few examples of this, and I think this is particularly true in the adtech space. You see investors dive deep into adtech, make some successful investments, but then pull out just as someone else enters to take their place.

The same is true for ecommerce. Both markets can be successful, but they are also very competitive and have particular challenges (e.g. the capital intensity of ecommerce, bad exit multiples, etc.).

So, I think it’s sometimes tough to pattern-match based on sectors. But I do think there’s success in pattern-matching based on founders.

Matching for founder profile

When an investor succeeds with a particular profile of founder, they tend to be enamored by founders of a similar ilk. I’ve had multiple conversations with investors that go like this: “I really like this company, the founder reminds me of (insert name) when he/she started (insert successful portfolio company).”

Investing in startups is personal, and as someone who is going to be spending a lot of time with a founder, investors tend to gravitate toward similar profiles of people.

This means that rather than types of companies, the types of founders an investor has backed give a strong clue of people the investor will gravitate to. It also means that the best way to get introduced to an investor is often through another founder in their portfolio—even better if you have similar attributes to them.

For me personally, I tend to be obsessed with what I would call deterministic, design-focused product founders.