The VC and Founder Fitment

Most, if not all VC funds look at founder profiles as the first cut. Pitch decks typically carry one slide with the founding team information. If the team is bigger, another slide is added. Thus, it is two slides that most VC analysts use to decide whether to move the application forward. In my limited experience, VCs look for certain spikes in a founder’s profile.

There are obvious managerial skills an entrepreneur needs to have. However, there are specific aspects VCs look at while making investment decisions.

Educational pedigree. Blume Ventures recently announced the close of its first fund. Their investor’s report shows that most startup founders come from premier educational institutions. Another angel investor mentioned that his first cut is the founder’s education. Now, why is this important for a venture capitalist? Well, here are a few reasons why I believe education is important:

1. Network. A founder from Harvard Business School will have an easier time fundraising. The reason is that most of his/her classmates or alumni are working with VC funds. Or perhaps even running them. Tapping into a known network is the most important aspect of a founder.
2. Ease of raising funds in following rounds. Educational pedigree and rich networks help founders raise follow-on funds. For instance, Ashneer Grover was able to raise funds for Bharat Pe due to his IIT Delhi and IIM Ahmedabad background.
3. Competence. On a personal note, I don’t necessarily agree with this. However, VCs have a bias and believe that folks from top-notch universities have higher competence levels than others.

Returning founders — In simple terms, this means founders who have returned investor’s money. In other words, founders who have had successful exits in the past. Funding returning founders is the best way to hedge risk. An example of this is Kunal Shah. A successful exit with Freecharge meant that raising for his next venture was easier. Cred, therefore, became a unicorn. The same goes for similar founders with successful exits.

College dropouts. This has been romanticized a lot. Yet, this demographic of founders appears to need more luck with VCs. Blume’s report shows college dropouts account for less than 1% of their investees. However, VC funds such as the Peter Theil Foundation exist to provide college dropout funding.

Good work experience. This category works for founders who don’t have the educational pedigree. There are a few categories of founders who pique the interest of VCs.

1. Big-name companies. Most VCs have a bias to fund people from Big 4 consulting firms. The reason is that most consultants have researched sectors and know where the gaps are.
2. Deep knowledge in a specific sector. Some founders start companies after a decade or two of experience in a specific field. The number of years spent researching specific industries can expose gaps that businesses can take advantage of. For instance, several doctors today have exploited the AI revolution by offering accessible healthcare solutions. Their odds of getting a foot into a VC door are high.
3. Bias for execution. Most VCs look for founders who are prepared to get their hands dirty. Execution with a complete plan is the recipe for a successful campaign.

Bringing it all together, the founder’s background is an important consideration. Especially in early-stage or idea-stage startups, VC firms bet on the founder. Business models can always be pivoted, but it is the pedigree of the founder that will ensure that the investment comes through.