Why do Investors Choose Multiple Founders? - Part 1
Did you know that according to the latest data available only 10% of startups succeed, and 90% of Startups fail? The startup funding lifecycle is long starting from the discovery of ideas, proof of concept, product design, product development and finally manufacturing delivery. This comes with pre-seed funding, seed funding, startup funding, expansion, and operating cap. It's not uncommon for investors to want to partner with more than one founder. Some of the reasons are obvious but others are trickier to understand.
Let’s discuss "why do VCs allocate funds to teams with multiple co-founders?"
Table of Contents
Different kinds of startups need different kinds of founders
The startup ecosystem offers a wide range of opportunities for founders who want to build something new.
Entrepreneurship is the art of taking a big idea, making it work in practice, and then making it work even better. The founders of a startup are the people who run it day-to-day and make sure it's successful. The most common kind of startup is the consumer product company. This kind of startup tries to sell a product or service to people who want it.
Different kinds of startups need different kinds of founders. Here are the most important differences:
1. Startups that have a long history often need people who know the ropes and have experience in the field. They will have built and scaled businesses before, so they understand what it takes to make good decisions and keep things moving forward.
2. Startups with no previous history can benefit from having someone who has worked at large companies or in an industry with which they're familiar. This person can help guide how to approach problems as well as how not to make them worse by making bad hires or mistakes in strategy.
3. The best founders are those who come into their own when they get started but also have enough self-awareness to know when it's time for them to move on — and when it's time for someone else to take over the reins of leadership.
4. They're good at solving problems.
5. They're able to build consensus among their team members.
6. They're willing to take risks if necessary.
7. They have a strong emotional connection with their customers, even if they don’t know them personally.
8. They have an innate ability to understand complex systems and how they work together on a larger scale (i.e., macroeconomics).
9. They have great communication skills (verbal and written).
What motivates founders to work together?
In business, the founders have a lot of work to do. They need to build the company, hire employees, and find customers. Finding money is challenging because investors will only give them money if they know what they are getting in return.
The challenges of establishing a business, managing employees and customers, and growing the company are all challenges that require strong leadership skills.
Founders are motivated to work together by a desire to build something that they can be proud of. They want their company to be the best at what it does, and they want to do it well.
They also want to work with other founders with similar goals and ambitions. It's hard to achieve success if you don't have anyone around to share ideas and help you achieve them.
Many factors motivate founders to work together:
One common reason is that they can't successfully launch their product with just one person. If one founder is struggling to get the product off the ground, another founder may be able to step in and fill that role. Or perhaps one founder has a unique skill set that complements another's expertise, making them ideal team members.
Another reason founders choose to work together is that they have a common vision for what they want their company to become—a shared goal that they are committed to achieving together.
There is also competition for customers, competition for talent, and competition for funding
To do something meaningful with their life.
To do something different than what is currently available.
To be able to positively impact the world (either in their way or through their work).
What happens when you have a single founder?
The first downside is that the company has a single point of failure—the founder. If the company loses him or her, that company dies. That's why it's important to think about succession planning and to make sure multiple people could take over if something happens to the founder.
This can be hard when the founders are young and inexperienced. They may not know what they don't know yet, so they don't realize how important it is to have a plan for who would replace them if something bad happens. There are many companies where any kind of formal process didn’t have evaluating replacements or figuring out who was next in line after the founder left—and so their founders left without anyone knowing what would happen next, which led to chaos at board meetings and an eventual collapse under its weight.
If you're the sole founder of your startup, you'll have to figure out how to juggle the responsibilities of running a business with your personal life.
Tackling issues such as managing multiple personalities and working in silos are familiar challenges for founders of multi-person startups that have more than one founder. But when you're the only founder, managing these issues can be harder because there's no one else to ask for advice.
You'll also have to act as the "go-to" person for other parts of the company. This means that you'll need to act as both lead mentor and manager. You'll also have to balance your personal goals with those of the company itself.
The single founder phenomenon is a common problem in early-stage companies. It means that there is only one founder, and this founder has no co-founder or employee. The single founder typically comes up with the idea for the company and spends years building it out before bringing on board a partner or employee.
What happens when you have multiple founders?
As you start your business, having more than one person in charge of different aspects of the business can be helpful. This will help to ensure that any problems are discovered early on and dealt with as soon as possible.
A strong leadership team is essential for any startup. Having more than one founder can help you ensure that there’s someone who can take over in case one of the founders fails or gets sick.
Multiple founders can help with the recruiting process. If you’re looking for new employees, having multiple founders who have worked together in the past will make it easier for recruiters to approach them with your company.
Having multiple founders means that it’s less likely that someone will steal your idea and start a competing business. It also means that if one founder leaves, he won’t be able to take all his knowledge with him.
It provides more of a safety net for the business. If one founder leaves, there are still two other people who can step into that role. This means that you have a backup plan in case something happens to the founder, which will ultimately help keep your company alive.
It allows for more creative viewpoints when it comes to what your business should do and how it should be run. If one person has a great idea, but another doesn't, then it's likely that the first person will be able to convince the second one to go along with it anyway.
It allows for more flexibility when it comes to how much funding you'll need for your company. Each founder may have different ideas on this topic, and if they're able to work together, they may be able to convince their investors that they need less capital than they originally thought was needed.
Multiple founders can lead to better product development. Having a single founder for a product is not always the best option. Having multiple founders allows each person to focus on a different aspect of the product and bring their specific expertise to the table. This means that the final product will be more well-rounded because it has been built by multiple people with different strengths and weaknesses.
Another benefit of having multiple founders is that they will all have different skill sets and experience levels. This means that they will each bring something new and unique to the table when starting your business venture together. You can then benefit from their strengths, which will make your company stronger in the long run.
Conclusion
Many startups choose to start with multiple founders. Not all teams are cohesive. However, those that choose this approach generally outperform the average startup. Multiple founder teams make the best use of their initial capabilities to find product-market fit.
Multiple founders are becoming the standard in most sophisticated investor portfolios. This is likely because startup teams with a balanced mix of talents and complementary skillsets are more likely to give them confidence in the ultimate success of that company.
Multiple founders are preferred by investors because they can intensify the overall development of the company, based on their areas of expertise. They will likely be able to offer a more diverse range of ideas and opinions.
Multi-founder startups are more likely to be successful and have better odds of reaching significant financial milestones.
Their company will achieve faster growth or better risk management. Investors may also seek out co-founders because they believe in the idea or because they believe in people more than the idea itself. Either way, both reasons show support towards multiple founder teams in this industry.