Let’s build the future that we want to live in.
Thoughts on Repeat Founders
Since the inception of NextView, we’ve had a reasonably even distribution between backing first time founders and founders who had started a company with success in the past. I’d say our proportions are roughly 1/3 early career first time founder, 1/3 repeat winner, and 1/3 other (including repeat founders who were not successful previously and experienced operators starting a company for the first time). In the repeat founder bucket, we were lucky to back founders like Angus Davis at Upserve, and Andrew Paradise at Skillz who took a chance in working with us even though we were not involved in their prior companies. As we’ve matured, we’ve been lucky to be able to back multiple founders twice now, including Brian Long (TapCommerce and Attentive), Pierre Valade (Sunrise and Jumbo Security), Max Goldman (Directr and Carefull), and Mike Russell and Justin Geller (Paintzen and Monument).
Backing a repeat founder has some amazing positives. But it’s not all rainbows and unicorns. We have a lot of friends who have started multiple companies and things don’t always work out. Here are some of the reasons VC’s love investing in repeat founders as well as some of the pitfalls I’ve observed that are not often discussed.
This is somewhat obvious, but I’ll try to prioritize what I see as the top three reasons why investors love repeat founders. The first is that repeat founders tend to be further up the learning curve on team building and organizational design and culture. I find a lot of founders realize that they did not optimize of culture and team quality the first time around, and so this is their chance to do things right. They also have a better sense of what type of people are needed and would excel at different stages of the business, and how to complement their own strengths and weaknesses. In a nutshell, repeat founders tend to have a leg up in building very strong early stage teams.
The second major benefit is existing relationships and know-how. Experienced founders should have an advantage in getting things done faster than a less experienced founder (of course, there are exceptions). This is particularly the case when a founder is continuing to build in their power-alley. What I’ve found worrisome is when founders switches contexts completely. This can certainly work, but many of their advantage are lost, and their experience is possibly detrimental if they try to view the new market from the lens of their prior business.
The third is the reduction in relationship uncertainty. Especially when it’s a founder you’ve worked with before, you get the sense that you are less likely to be surprised by how a founder will react and respond in a pretty wide range of circumstances. Of course, people change and each challenge is different. But having a better sense of the knowns, and unknowns and tendencies in a relationship gives a lot of comfort on both sides of the table.
There are less obvious so I’ll go through these more methodically.
The number one challenge for repeat founders is committing to an idea that is authentic and that they care deeply about. I find that repeat founders face two countervailing forces. On one hand, they know that founding and leading companies is in their DNA and can’t really imagine doing anything else. On the other hand, they know how hard it is to build a startup and don’t want to pick an area that they will end up regretting. Often, the motivation for their earlier startup came from some authentic, deep rooted need or problem they encountered. The second company is sometimes more academic, and is less of a problem that they “just can’t help but solve”.
Related to this is the second challenge. As I mentioned earlier, repeat founders are super attractive when they are operating in a domain they are familiar with and have super-power-like advantages. But often, founders feel like they are fatigued with the market they know, or know too much about the hidden challenges and pitfalls of that market. I’ve heard many founders say something like “if I knew what I know now about market X, I never would have started a company there”. So then the founder switches markets, and some of their advantages are lost or minimized. The worst case scenario is when a repeat founder operates in an area that is both inauthentic AND where he/she does not have strong founder/market fit.
The next pitfall is the mismatch between the risk of PMF and funding terms. Although investors love backing repeat founders, the market doesn’t care what your resume or LI says. The challenge of going from 0-1 and finding product/market fit is difficult no matter what your background is. Also, even repeat founders don’t necessarily have that many reps at this sort of experimentation, and so the risk that they are unable to find PMF is not necessarily lower than other founders.
Compounding this is the fact that repeat founders can often raise capital before PMF and command funding terms that are pretty rich relative to this risk. This mismatch can create challenges for some investors, especially ones with fairly disciplined models and who have great deal flow. Newer investors are more likely to stretch up to hit the bid because they feel like it’s a coup to work with this founder. But I’ve noticed that the firms that I know have amazing deal flow and track records are the ones more likely to let the opportunity pass them by because of this mismatch between PMF risk and funding terms.
I’m going to jam a bunch of ideas into this last pitfall and call it the loss of the “first time founder’s mindset”. This incorporates the combination of scrappiness, a beginner’s mind, and the paranoia that might push a founder to do extraordinary things. There is a reason why some of the most revolutionary companies were built by first time founders that accomplish things that more experienced operators were unable to build. But because of life stage, wealth, and shifting priorities, most repeat founders don’t the same level of single-minded determination that they had the first time around.
This can be balanced by the positives referenced above, and actually might be better for the founder’s mental and emotional health overall. But the thing I pay most attention to is whether a founder still has a beginners mind and the same hunger to learn and approach problems in a fresh and creative way. Personally, I understand that success and maturity may change a founder’s willingness to grind tirelessly like they did with their first company. But I get really worried when it seems like they are starting to lose their hunger to learn and evolve and the fear of falling behind.