We recently wrote on Crunchbase News about how venture capitalists are starting to become founders in this market.
There’s a constant balance of power between founders and investors. The recent influx of capital into venture has created massive competition among VCs to get in on the hottest deals. This is spiking valuations and resulting in massive funding rounds, even at the earliest stages. Currently, the negotiating power is entirely in the hands of founders.
However, it wasn’t always so. Before massive liquidity hit the system and capital was more scarce, venture investors controlled the leverage in conversations with founders. This ever-shifting balance of power has created a revolving door of founders turned investors and vice versa. The smartest entrepreneurs are wise to go where the power is.
Many of today’s leading venture funds were started and are led by former founders. The legendary Founders Fund was built by the PayPal mafia. Marc Andreessen’s Silicon Valley legacy is built on his role as a co-founder of Netscape. Likewise, most of the partners at Accel came through the revolving founder door. The list goes on.
While the jury is still out on whether or not being a founder leads to smarter VC deals, there are some obvious perks to having been on both sides of the fence. The most obvious is the inherent perspective these investors have on what founders want and need. VCs who have experienced the negotiating dynamics from the founder side are better equipped to leverage those dynamics to achieve smarter deals and better relationships with founders.
Given the dynamics in the capital markets, many VCs are taking laps through the revolving door as well, leveraging their relationships and access to capital to launch new companies.
A couple of recent examples of this include David Sacks, the Craft Ventures investor turned founder of Callin and Keith Rabois, a Founders Fund general partner turned founder of OpenStore. Both started as VCs, became founders, then went on to launch amazing companies.