Does their own success as founders have a bearing on their performance as a VC?
SyndiCat is snide as always! But let’s do some serious scratching.
Talking of successful ex-founder VCs reminds me of some legends who successfully completed their walk to the other side of the table.
Marc Andreessen co-created the Netscape browser; his firm a16z manages a $46 billion portfolio. Peter Thiel co-founded PayPal and is an expert at identifying potential industry dominators like Facebook.
It is hard to find examples of unsuccessful ex-founder VCs (failure makes most people shy) but there is enough anecdotal evidence of the successful ones. There is data too… a 2022 National Bureau of Economic Research (NBER) study identified that successful startup founder-VCs deliver an investment success rate of nearly 30%, as compared to 23% by the traditional (professional) VCs. Data aligns with the anecdotal evidence.
The trend of this success was probably first identified by the Fortune magazine in 2007 – it went so far as to coin the term PayPal mafia for the PayPal innovators becoming influential individuals in Silicon Valley. That these ex-founder-VCs spawned a whole generation of successful founders, is a phenomenon confirmed by the NBER study.
It is probably not hard to figure out why the ex-founder VCs excel. First, they are themselves battle-tested. Their intuitive understanding of which businesses will work and which ones won’t, gives them an edge. Then, there’s the empathy factor, as they are more likely to offer better and timely support to their founders. Their (possibly) entrepreneurial approach to investing could be another factor in their success. The list could go on but I think you get the gist.
Not all may be rosy with ex-founder VCs, though. For their investee founders, they could come across as more “interfering”, force-feeding their own war room experiences. As investors, they could suffer from sector bias (favoring their own), could suffer from advisory overcommitment and even a (possible) lack of patience for fund management operations and regulatory compliances.
All factors accounted, the NBER study appears to point to the overall success of ex-founders transitioning into VCs. If this remains a sustained trend, there is perhaps a case for traditional VCs evolving their own partnership structures to take advantage of the value ex-founder VCs could bring in. One way could be to actively seek out their successful (and exiting) alumni founders and offer them a place on your big table.
Who knows, we might see more VC firms acquiring the agelessness and cross-borderli-ness* of McKinsey & Deloitte!
Your portfolio companies could turn into your best hiring pipeline!
* this may not be a word
If you’re looking to create SPVs or simply exploring your options, you’re welcome to browse Propel(x) SPVs page. I would also encourage you to book a call with us for a walk-through of our platform.
Cheers!
