So this is a topic that is hard to really “learn” anywhere other than in the real world and probably with a little trial and error involved. We often talk about product-market fit as an indicator of a startup's success, but to even get to this point in a startup's lifecycle and to not mess it up afterwards, founder-investor fit is also a crucial litmus test that is under-discussed.
Just like the wide variety of startups building and trying new things, there is an equally complex matrix of investors who offer different approaches and methodologies to working with founders and startups. The tricky part for most founders is cutting through all the noise to figure out which ones are the right fit for their cap table. For founders, this process can be just as important to your success as is finding product-market fit. And for all my fellow founders out there, from what I’ve seen that last year or so, there are more investors than ever out there and seemingly fewer and fewer startups so the power and selection are really in your hands if you have a solid company that you are building.
So why is founder-investor fit so important? Well, it really comes down to what you are looking for and how you want to operate and grow your business. Maybe you are building something in a highly competitive market, maybe an angel or fun partner that has a proven track record in that industry and is looked at as a thought leader which will help you cut through a lot of the noise from the rest of the market. Maybe you are a 2nd or 3rd-time founder who kinda has a game-plan in place and you just want more passive capital that can step up and open a door or two when you need it. Two very different types of investors but both exist, the tricky part is finding them, especially if you are a first-time founder.
One thing that is a huge helper here is multi-time founders lending first-time founders a helping hand, especially if you have a decent network of of investors from previous startups. If you know a first-time founder, sit down with them and really try and understand how they want to build their business and then try and see if you can help them sift through the investor landscape to try and find the most likely fits for them.
Investors also have a role to play here, investors often tend to be the initial point of contact for a lot of founders. Investors often review pitch decks and even take initial meetings/calls, only to discover that the company is not a great fit for their fund. There are a myriad of reasons that could be, sector, stage, tech, etc., all of them legit reasons. But investors know other investors, it's not that big of an industry and whether you are an angle or UHNWI investing your own capital or a professional capital allocator they all talk. Founders, don’t be afraid to ask an investor who passes if they know any investors who might be a better fit. Obviously, there are no guarantees or promises that these investors will invest, you need to go in with the mindset that they may pass too.
Obviously founder-investor fit is a dance that both sides are feeling out. The ultimate tool in this situation is to have more open and honest discussions around if they are the right fit for one another. Capital and the business tend t be the focus of most investor meetings and pitches, both obviously important factors but there is the human element that is also in play and part of the larger equation. And just like misreading a business that ultimately fails, you will make mistakes on this front too so don’t let it paralyze a decision, just try and be aware of what happens when an investor puts capital into a startup.