The path from a founder to a VC is full of invaluable lessons. 

Entrepreneurs who have journeyed through the process of building a company from scratch have a deep understanding of the numerous challenges startups face. They’ve grappled with refining business models, securing funding, penetrating markets, and building effective teams. These experiences cultivate a rare and highly valued empathy and insight in the venture capital sector.

This empathy extends beyond mere understanding: it fosters a sense of trust and relatability between the founder-VC and the entrepreneur. Startups often find it easier to relate to someone who has walked in their shoes, who understands the gravity of their decisions, and who can offer practical, experience-based advice. 

This rapport can be a critical factor in the success of a venture capital deal, influencing everything from deal structuring to long-term strategic planning.

Insider’s edge

Furthermore, founder-VCs often possess an innate ability to identify potential in startups that others might overlook. Their background as entrepreneurs allows them to spot opportunities not just in terms of market potential but also in terms of team dynamics, scalability, and innovation. They can gauge the resilience and adaptability of a startup team, qualities that are pivotal for long-term success but often hard to quantify.

The practical insights that founder-VCs bring to the table are another significant advantage. Having been in the startup arena themselves, they can offer concrete advice on a range of issues, from product development to market entry strategies. This advice is grounded in real-world experience, making it incredibly relevant and valuable for startups.

Proven success

Case studies of successful founder-VCs illustrate this unique edge. Consider the story of a founder who successfully exited their tech startup and then transitioned into venture capital. As a VC, this individual was able to leverage their deep understanding of the tech industry to identify and invest in startups that were developing groundbreaking technologies. Their ability to mentor these startups, drawing on their own experiences, significantly contributed to the success of these ventures.

 Another example is a founder-VC who specialised in consumer goods. Their journey as an entrepreneur provided them with keen insights into consumer behaviour, branding, and retail dynamics. As a VC, they applied this knowledge to identify consumer startups with the potential for high growth and guided them through the complexities of scaling and brand building.

The power of the founder

The rise of founder-VCs also signals a shift in the venture capital ecosystem towards a more founder-friendly approach. These individuals often advocate for fairer deal terms, more supportive engagement with startups, and a focus on long-term value creation rather than short-term gains. Their approach tends to be more holistic, considering the overall well-being of the startup, including the team’s mental health and work-life balance, which are crucial for sustainable growth.

In addition, founder-VCs are often champions of innovation. Having been innovators themselves, they have a keen eye for truly disruptive ideas and technologies. Their experience enables them to sift through the hype and identify startups that are not just following trends but are genuinely breaking new ground. This ability to discern between mere buzz and genuine innovation is invaluable in today’s fast-paced tech landscape.

The network that founder-VCs build over their entrepreneurial journey is another asset. They often have extensive connections with other entrepreneurs, industry experts, and potential customers, which can be leveraged to benefit their portfolio companies. These networks can open doors for startups, providing access to vital resources, partnerships, and market opportunities.

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Challenges remain

However, the transition from entrepreneur to VC is not without its challenges. Founder-VCs must adapt to a different role, shifting from being at the helm of a company to supporting entrepreneurs in a more advisory capacity. This shift requires a change in mindset, from being deeply involved in the operational details to taking a more strategic, big-picture view.

Despite these challenges, the trend of founders becoming venture capitalists is a positive development for the startup ecosystem. It brings a wealth of practical experience, empathy, and a founder-centric perspective to venture capital. This shift is not just about investing capital but about nurturing the next generation of businesses with a deep understanding of what it takes to succeed in the competitive world of startups.

The unique edge of founder-VCs lies in their lived experience. They understand the rollercoaster journey of building a business, the elation of triumphs, and the resilience required to overcome setbacks. This empathy and insight enable them to provide financial support and emotional and strategic guidance, which can be critical during a startup’s challenging phases.

As the venture capital industry continues to evolve, the role of founder-VCs becomes increasingly significant. Their unique blend of entrepreneurial experience, empathy, practical insight, and network provides a valuable perspective in the investment world. These individuals are well-positioned to identify, invest in, and nurture the next wave of successful startups, contributing to an ecosystem that values sustainable growth, innovation, and long-term vision. As more entrepreneurs make the leap into venture capital, we can expect a more nuanced, experienced and founder-friendly approach to emerge, benefiting startups and the broader business community alike.

Nicolai is CEO of Incore Invest

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