Why Do Solo Founders Make VCs Nervous?
One topic that gets startup founders riled up is the fact that many VCs won’t invest in solo founders. It’s frustrating to be asked over-and-over again about your cofounders when you’re a solo founder. After awhile, it can easily begin to feel like a lazy cop out. So why do solo founders make VCs nervous?
Before I get into that, a quick aside…
Many of you have likely seen some version of the chart below from a 2018 study called Sole Survivors: Solo Ventures Versus Founding Teams:
This study is often pointed to as a repudiation of investors who are unwilling to back solo founders with some variation of the claim, “Solo founders are 2.6x more likely to succeed than founding teams!” But alas, that’s not what the study said.
In fact, this study wasn’t even about venture-backed startups. It was about kickstarter projects that were crowdfunded between 2009 and 2015. And that 2.6x number? It has nothing to do with success — it’s simply a measure of which companies were still alive when the study was done.
Speaking of companies, many of those “solo founder companies” referenced in the study were actually just single-person companies. Which isn’t to say that they aren’t to be commended, but defining success as a “single-person LLC that isn’t dead” isn’t what we typically think about when we’re talking about high-growth ventures.
So let’s focus on high-growth startups and dig into some of the concerns that potential investors have when it comes to solo founders.
Just as it’s important during fundraising to get a VC to see past your resume, understanding the reasons why solo founders make VCs nervous can help you to present your company (and yourself) in a way that asuages those fears.
Here are 5 reasons why solo founders make VCs nervous:
1. Are you difficult to work with?
This is the low-hanging fruit of risks: are you a solo founder by choice, or because nobody wants to work with you?
“Hi Peter. What’s Happening? We need to talk about you being my cofounder.”
Like it or not, it’s a legitimate concern. You can mitigate this by assembling a strong team, but if it’s just you…why is it just you?
2. Do you have a sounding board?
Another major risk that solo founders face is that they often don’t have a sounding board in the same way that CEOs with cofounders do.
When you’re a solo founder, everyone else in the company works for you. That means they’re unlikely to give you the type of direct feedback that you would get from cofounders. On top of that, when feedback is given, many solo founders dismiss it for all manner of reasons.
Over the years, I’ve invested in many solo founders and almost every one struggled with this point. In some cases, I would argue that the lack of a trusted sounding board ultimately led to the failure of the company.
If you’ve got a proven track record, this isn’t as much of an issue. But if you’re a first-time founder, showing investors that you’ve assembled a trusted pit crew (not just an advisor slide with fancy names and logos), can go a long way in building confidence in your ability to survive the startup rollercoaster and not get caught up in your own tunnel vision.
3. Can you go fast enough?
When I pass on a strong solo founder, this is easily the #1 reason why.
It’s not that I don’t think you’re smart. It’s not that I don’t think your idea is a good one. It’s that I’m not convinced that you can go fast enough to win in a competitive market where other startups have 2, 3 or 4 equivalently awesome cofounders on day one.
I’ve written before about the fact that when I meet a promising Canadian startup, the #1 question in my head is always, “Can you beat my friends?” A nuance to that is that every single one of my friends who created a unicorn had cofounders. On day one of their company, they were a highly motivated, highly incentivized and highly aligned team.
Who are you handing off to?
Obviously, there’s a bit of selection bias here, but the velocity and trajectory of a startup with multiple cofounders is fundamentally different from one founded by a single, highly-experienced cofounder, unless you’re starting off with an extremely strong supporting cast.
I recently passed on a company with a very strong, experienced solo founder whose concept and early validation with impressive. Unfortunately, when we started talking through his roadmap for the next couple of years, it was a clear that the company’s velocity was already bottlenecked by the founder having to fill multiple strategic roles. And there was no clear path to unblocking him. As a result, I simply could not envision a version of the future where this founder wouldn’t lose out to the other companies I knew to be already in market with teams of 3 or 4 equivalently strong cofounders.
4. Do you have the right network / can you hire?
Another team-related risk of solo founders focuses on whether or not you can hire the right people.
A significant percentage of the companies I’ve met at Pre-Seed with solo founders have teams that consist of a strong solo founder, perhaps one senior-ish engineer, and a couple of junior devs. It makes sense, considering that the engineers are all likely looking for decent salaries and the company hasn’t yet raised meaningful capital.
The problem is, if you’re going to win in a competitive market, you need to have a competitive team. And that can’t just be cheap, junior devs. Who’s going to be your CTO? Your VPE? Your head of sales? Etc.
Can you recruit a top-tier leadership team?
You don’t have to have all of the answers, but if you can demonstrate a strong professional network and/or identify one or two key hires you intend to make after completing the round, it will go a long way to convincing potential investors that you’ve got the right connections.
5. What if you get hit by a bus?
This may sound facetious, but it reflects a legitimate risk: a company with a solo founder has a single point of failure from day one.
Absent a strong executive team, the company’s progress (or lack thereof) is directly pinned to your personal well-being. What happens when you get sick? What happens when you take a vacation (or, worse, what happens if you don’t)?
Back when I was at Aster Data, our CEO Mayank went back to India one year for holidays…and U.S. immigration didn’t let him back in. I won’t go into the details of how ridiculous this situation was (there’s a reason why immigration is America’s Achilles’ heel) but it goes without saying that it was less than ideal for a fast-growing startup.
It was more than 3 months before Mayank was allowed back into the US. And while it was certainly disruptive (this was back before Zoom or Slack or remote work), our team didn’t miss a beat. (I got really good at saying, “Hi, my name is Chris Neumann. Unfortunately, Mayank’s flight got delayed…”)
While this was obviously an unusual situation, it’s not at all uncommon for founders to unexpectedly need to take time off. That’s life. Demonstrating that you’re setting up redundancies within your company early on — including to mitigate founder burnout — is something to keep in the back of your mind when speaking with potential investors.