Founders Backing Founders: A Model Worth Leveraging?
It’s still very early days in startup land for me. Nevertheless, I quickly came to an insight that led me to formalize this blog post. Nowadays, money is literally flooding the system. And venture capital firms (VCs) try their best at allocating dollars to as many highly promising businesses as possible in order to stay alive in this incredibly competitive market. So far so good. But dollars alone won’t get startups anywhere. A lesson I had to learn the hard way. Don’t get me wrong, there may well be many great VCs that help founders with much more than just capital. For example, they may help by providing expertise in a given domain, connecting founders with the right people from their network, and so forth. But something much more trivial is oftentimes missing in the value proposition of VCs, I feel: being or having been a founder and operator.
Having a founder on your cap table might be a true game-changer. The reason for that is simple: A founder’s job is basically to figure out how to do things. And how to do them even better than the status quo does. Hence, learning is the magic sauce. And so who wouldn’t love to have a sparring partner that is already further ahead in the learning process and knows what you are going through?
That’s why I see founders as some of the most valuable people to startups at any given moment. Many have phenomenal advice to share from past learnings from their own startup experiences. And they might be helpful when it comes to technical questions and challenges. Or just simply by sticking around, having empathy, exchanging ideas, and giving inputs from a different perspective than a traditional investor would.
Such founders are part of the VC game since the very beginning. But they are a minority compared to all the courageous entrepreneurs out there. Too few founders have the liquidity that allows them to invest in other companies. So, what if we are able to find some crazy founder guys and gals that come together and form a new investment vehicle that solves exactly this problem?
This community of successful founders would then not only provide advice to fellow founders and aspiring angel investors but also money to go out and fund other founders. On one hand, this would enable startup founders to raise money from their most valuable advisors much earlier in the process (when most VCs can’t or don’t want to invest). On the other hand, founders that do not have the liquidity themselves just yet still would have the possibility to invest in startups. By doing so, they would be able to learn the craft of angel investing (i.e. evaluating startups, passing when valuations are too high, dealing with bridge rounds, negotiating pro ratas, identifying respectively distinguishing signals from noise, and many other important things) while also learning for themselves as founders. Resulting in the training and formation of the new generation of top-tier investors that eventually will have the means to drive innovation and create value for the generations to come.
A nice side effect of such a vehicle is that it would provide these founder advisors with the opportunity to get compensated for their advice and support. And it would hopefully also stimulate the growth of more high-quality businesses that at some point, are going to qualify for VC money.