Why VCs Rarely Invest in Single Founders
Starting a company is hard. It’s even harder when you’re doing it alone as a single founder. Venture capitalists (VCs) often hesitate to invest in single founder startups. There are several reasons behind this reluctance.
In this blog post, we’ll explore why VCs rarely back solo entrepreneurs. We’ll examine the potential risks, challenges, and drawbacks that make single founder startups less attractive to investors. But we’ll also look at some exceptions and success stories that prove it’s possible to defy the odds.
The Risks of Going Solo
Going solo as an entrepreneur is incredibly risky. VCs are in the business of managing risk, so they tend to be wary of single-founder teams. The potential for founder burnout and blindspots is much higher when there’s no supporting cast of co-founders.
Burnout is a key risk factor that makes VCs hesitant to back single founders. With the immense workload and stress, it’s easy to get overwhelmed flying solo.
Fundraising also becomes more challenging as an individual founder. Investors often view co-founding teams as more capable of handling the company’s growth and evolution.
| Risk | Description |
|---|---|
| Burnout/Illness | With no co-founder to share the workload, burnout is a major concern for single founders. |
| Blind Spots | A solo founder may miss key issues or opportunities due to a lack of diverse viewpoints. |
| Funding Challenges | VCs view single founder teams as riskier investments compared to co-founder teams. |
| Scaling Issues | Running all aspects of a growing company alone is extremely difficult for one person. |
The Workload is Immense
Building a startup requires wearing many different hats – marketer, salesperson, product manager, recruiter and more. For single founders, this workload is even more extreme as they don’t have co-founders to divide responsibilities.
Running a growing company alone is like being an orchestra conductor, composer, and every single musician simultaneously. It’s an incredible challenge that very few people can handle over the long-term without burning out.
The breadth of skills and knowledge required is truly staggering. VCs understand this reality, which is why they heavily prefer investing in co-founding teams that can share the load.
Lack of Diverse Perspectives
Another big challenge for solo founders is the lack of diverse viewpoints and skill sets. With co-founders, you have built-in checks-and-balances and complementary strengths.
A single founder runs the risk of developing tunnel vision and becoming blind to key issues or missed opportunities. With multiple founders, you benefit from diverse perspectives that lead to better decision making.
Great startups are rarely built by a single brilliant mind. They emerge from teams of people combining their talents in powerful ways.
This is a major drawback that makes VCs favor co-founding teams. A well-rounded startup team with diverse backgrounds is much better positioned to tackle the inevitable challenges.
Higher Founder Risk
Investing in any startup is a huge risk for VCs. By backing a single-founder startup, that risk gets amplified due to the heightened founder risk involved.
If the solo founder leaves for any reason – health issues, burnout, losing passion for the business, or even death – the entire company is at risk of failure. With co-founders, there is a shared commitment and backup plan.
For VCs, investing millions into a company that could disappear if one person walks away is generally considered too risky a proposition. This founder-dependency risk is a major factor in the VC aversion to single founders.
Exceptions to the Rule
While VCs may shy away from solo founders as a general rule, there are always exceptions. Highly accomplished and experienced founders with a track record of success can sometimes overcome the single founder stigma.
For example, Ev Williams was able to raise over $20 million from Benchmark and other top VCs to start Medium as a single founder. His credibility from previously co-founding Blogger and Twitter made him an exception.
There are also cases of highly technical single founders with game-changing product visions that attract VC interest – think founders like Patrick Collison (Stripe), Brian Chesky (Airbnb), or Steve Wozniak in the early days of Apple.
However, these cases are the exceptions rather than the norm. For most first-time solo entrepreneurs, convincing VCs to invest is an uphill battle.
Traditional VC Investment Models
It’s important to note that while VCs may invest in highly innovative and disruptive companies, their investment philosophies and models tend to still follow traditional practices. This includes a strong preference for:
- Investing in co-founding teams rather than solo founders
- Backing founders from prestigious universities and companies
- Favoring seasoned founders with prior entrepreneurial experience
Even as VC funds claim to have a thesis around backing novel ideas and solutions, the fundamentals of their investment process often remain fairly conventional. Pedigreed founding teams get prioritized over promising single founders.
So while the companies and products they invest in may be future-shaping, the VC firms themselves still adhere to many long-standing assumptions about what defines an attractive investment opportunity. Until their mentalities evolve more, single founders will likely continue facing an uphill climb in the VC world.
TL;DR
- VCs tend to avoid single-founder startups due to higher risks
- Top risks include founder burnout, lack of diverse perspectives, and founder dependency
- Solo founders face an immense workload trying to handle all roles
- Without co-founders, blind spots and tunnel vision are more likely
- If the solo founder leaves for any reason, the company is at high risk
- Exceptions exist for elite founders with experience and proven track records
- Most single founders face an uphill battle in raising VC funding
- While VCs invest in innovative companies, their models still favor co-founding teams/pedigreed founders
Q&A
Q: Are there any upsides or advantages to being a single founder?
A: While less common, there are potential upsides like having full control, simpler decision-making, no co-founder conflicts, and being able to move faster initially. However, the downsides tend to outweigh the benefits long-term.
Q: What alternatives to VC funding should single founders consider?
A: Great alternatives include bootstrapping, crowdfunding, angel investors, accelerators, small business loans, revenue-based financing, and tapping personal networks. Many single founders take this route.
Q: How can a single founder increase their odds of VC funding?
A: Building an exceptional product, demonstrating traction, developing a strategic plan for scaling, and securing experienced advisors/mentors can all help. But ultimately, most VCs still prefer co-founding teams.
Q: Are there certain industries or business models better suited for single founders?
A: Lean, bootstrapped, lifestyle businesses in areas like consulting, software, e-commerce or services can work well for single founders. VC-backed, rapid-growth startups are tougher alone.
Q: Should single founders always try to find a co-founder before fundraising?
A: Not necessarily. There are tradeoffs to taking on a co-founder. For some, proving traction alone may be a better path then attracting a talented co-founder or small team.
Quiz
Below are 6 multiple-choice questions to test your understanding from the blog post:
- What is the biggest risk factor that makes VCs wary of single founders? A) Higher founder dependency
B) Founder burnout C) Lack of diverse skill sets D) Fundraising challenges - True or False: A single founder is better positioned than a team to avoid co-founder conflicts. A) True B) False
- Which of the following is NOT a good funding alternative for single founders? A) Bootstrapping B) Angel investors C) Late stage VC D) Crowdfunding
- According to the post, which type of startup may be better suited for single founders? A) Rapidly scaling, VC-backed tech startups B) Lean, bootstrapped lifestyle businesses C) Single founders are ill-suited for any type of startup D) Highly technical, product-focused startups
- If a single founder is able to demonstrate strong traction, they should: A) Always take on a co-founder before raising funds B) Consider their options – co-founder and/or small team C) Stick to being a single founder no matter what D) Give up and shut down the startup
- Despite investing in innovative companies, most VC firms still favor: A) Single founders from non-prestigious backgrounds B) Co-founding teams from elite universities/companies C) Single founders with little entrepreneurial experience
D) Non-technical founders building consumer apps
Answers: 1:B, 2:A, 3:C, 4:B, 5:B, 6:B
Scoring:
5-6 correct – Excellent understanding of why VCs avoid single founders
4 or less – Basic understanding. Re-read the post
