Does prior experience founding or operating a company make someone a better venture investor?

Jason Lemkin · Nov 30, 2022

Ex-operators should only invest in CEOs who are clearly better than they were as founders; when the traction or product is cool but the founder isn't better than you, the investment fails.

The market is so hard, competitive and fast that if the founders aren't better than you, the product decays against the competition within two to three years; Algolia's founders were clearly better than him on traction and problem understanding, and his mistakes were the cases where they weren't.

Scope: specific to investors who have themselves had a decent founder outcome; a rule he says most successful VCs don't understand

17:35 20VC: Jason Lemkin on Why Founders Do Not Care About Their VCs Anymore, Why Zoom Made Us All Worse Investors, Why 80-90% IRR Should Have Been Warning Signs and the Algolia Journey From Seed to $2.25BN Valuation

Jason Lemkin · Jan 13, 2023

Founder-investors have a superpower money managers lack: they can tell which founders are better than they were — but only if there's some revenue to judge, since pre-revenue in SaaS/B2B you can't be sure

He started investing at that stage because he needed 'meat on the bones' to compare a founder to himself

Scope: specific to SaaS and B2B

38:15 20VC: WTF is Going On in VC? Are VCs Still Investing? How Has What VCs Want in Investments Changed? Are LPs Investing in New Funds? Why VCs That Invest in Public Markets Are Losers? Dec 2023; Will It Be Better Or Worse with Jason Lemkin

Harry Stebbings · Nov 3, 2023

The most useful operator heuristic is measuring every CEO against yourself — if they're better than you were, they pass the quality bar

having built a company yourself gives you a personal benchmark for founder quality that a non-operator simply doesn't have

Scope: credited to Jason Lemkin, who says it often

14:49 20VC Roundtable: Why Early Stage Founders Should Not be Investing, Why Great Founders Have Low EQ, How the Structure of VC Firms Will Change, Will Founder-Led Funds Compete with Sequoia & Is Investing a Team Sport?

Jason Lemkin · Nov 3, 2023

The superpower successful founders have as investors is knowing who is better than them, whereas pure-money investors don't even know what that means

having operated, you can rank people against yourself and against the best you've encountered

15:05 20VC Roundtable: Why Early Stage Founders Should Not be Investing, Why Great Founders Have Low EQ, How the Structure of VC Firms Will Change, Will Founder-Led Funds Compete with Sequoia & Is Investing a Team Sport?

Jack Altman · Nov 3, 2023

Founders want other founders on their cap table mainly for current, hands-on tactical advice from someone doing the job now

A full-time VC's operating experience is often about ten years out of date, while an active founder's advice is still relevant

Scope: about founders as investors generally, not necessarily as lead

5:00 20VC Roundtable: Why Early Stage Founders Should Not be Investing, Why Great Founders Have Low EQ, How the Structure of VC Firms Will Change, Will Founder-Led Funds Compete with Sequoia & Is Investing a Team Sport?

Jack Altman · Nov 3, 2023

Operating builds a more prepared investing mind because you constantly spend time with execs and ICs who use tools and hear their problems firsthand

living in it gives you a general sense of what software each function's execs care about, so you can judge whether an off-radar tool could matter or grow into an adjacency

Scope: applies mainly to software/tooling markets

13:20 20VC Roundtable: Why Early Stage Founders Should Not be Investing, Why Great Founders Have Low EQ, How the Structure of VC Firms Will Change, Will Founder-Led Funds Compete with Sequoia & Is Investing a Team Sport?

Mike Shebat · Nov 27, 2023

Operating a company while investing is net very positive for the investing side, because doing the work firsthand refreshes concrete details on recruiting and growth funnels that make you more useful to founders

Having it in your hands again makes you remember details you can pass on to entrepreneurs

Scope: applies to the VC side only

16:52 20VC: Keith Rabois and Mike Shebat on Creating an Olympian Mindset to Work Ethic, Why First-Time Founders are Better Than Serial Entrepreneurs, Why Remote Work Does Not Work, Why the Best Founders Always Start in their Teens & Why Companies are Cults?

Trae Stephens · Apr 3, 2024

Being operationally engaged at a startup makes him a materially better investor

Operational knowledge decays fast — the tools, software and technical frontier shift constantly, so day-to-day involvement at Anduril keeps him current on what companies actually use and what matters

62:29 20VC: Founders Fund's Trae Stephens on Why The Most Competitive Deals are the Worst, Why No Company is Successful Because of their VC, Why We are Making ZIRP Mistakes Again Today, Why Loss Ratio is BS and Upside Maximisation is Everything

Alex Lebrun · Jun 19, 2023

European VC has improved a lot, but the historical gap was that European VCs came from banking while US VCs were former entrepreneurs

Venture is mostly about entrepreneurship rather than finance, so founders need an ex-entrepreneur far more than a banker

Scope: describes Europe of roughly ten years ago; acknowledges finance matters a little

52:33 20VC: Why No Models Today Will Be Used in a Year, Why Open Will Always Beat Closed in AI, Why Proprietary Data is Less Important Than Ever And Why EU AI Regulation is a Disaster with Alex Lebrun, Founder & CEO @ Nabla

Sri Batchu · Jul 26, 2023

Currently-operating operators who invest part-time have an advantage over professional investors across all four parts of the investing process — deal flow, diligence, winning allocation, and portfolio support — at small check sizes and early stages

They see departing colleagues first, get inbound from reputation, and face far less conflict with other funds so top firms invite them into rounds where the sourcing and diligence is already done

Scope: applies to smaller checks and earlier stages

38:01 20Growth: Biggest Growth Lessons from Instacart and Opendoor, Why 70% of Growth Experiments Should Fail and How to Fail Fast, How to Hire a Growth Team; Secrets and Tips & Why Operator Investors WIll be the Best Investors in 10 Years with Sri Batchu @ Ram

Trae Stephens · Apr 3, 2024 · hedged

Venture would be better and more interesting if founders and operators were the ones investing

The advice he has gotten most from came from current or former founders and operators — they have lived it; if venture is about anything beyond access to capital, operators are far more useful

Scope: conditional on venture being about more than just access to capital

63:22 20VC: Founders Fund's Trae Stephens on Why The Most Competitive Deals are the Worst, Why No Company is Successful Because of their VC, Why We are Making ZIRP Mistakes Again Today, Why Loss Ratio is BS and Upside Maximisation is Everything

Brian Halligan · Jan 15, 2024

Both operator-VCs and non-operator VCs can work; a VC without CEO experience can add enormous value through benchmarking, network access and deep unit-economics work rather than operational involvement

Pat Grady had never been a CEO but found ways to add value without sticking his nose into operational details

59:05 20VC: Hubspot Co-Founder Brian Halligan on Leadership Lessons Scaling Hubspot to a $28BN Market Cap | The Best Series A Investment in Venture History & What Makes Sequoia so Successful?

Harry Stebbings · Jan 15, 2024

Whether a VC was previously a CEO or operator doesn't matter; what matters is whether they're a good source of cash, supportive through bad quarters, and pleasant to work with

What it takes to build a great company has changed so much across pre-COVID, pre-cloud and pre-AI eras that old operating playbooks don't transfer

60:06 20VC: Hubspot Co-Founder Brian Halligan on Leadership Lessons Scaling Hubspot to a $28BN Market Cap | The Best Series A Investment in Venture History & What Makes Sequoia so Successful?

Kevin Hartz · Jul 22, 2024

Operating experience is not a prerequisite for being a great venture investor; the old Valley belief that you had to have walked in the founder's shoes has been disproven

Michael Moritz came from journalism, Bill Gurley from banking, and Jeremy Levine never operated yet has been an extraordinary investor

25:22 20VC: How I Lost Airbnb at Seed Because of an Exploding Term Sheet | Investing Lessons from Roelof Botha & Peter Thiel | Why VC is Less Collaborative Than Ever and Great Companies Are Being Destroyed by Too Much Cash with Kevin Hartz @ A*

Eric Vishria · Sep 25, 2024

Having been a founder makes an investor more empathetic to entrepreneurs, because you understand how much is outside a founder's control

startups are really hard; there's a whole bunch you can do and a whole bunch you can't

4:11 20VC: Benchmark's Eric Vishria on Where is the Value in AI: Chips, Models or Apps | Why Nvidia Will Not Be The Only Game in Town | The Commoditisation of Foundation Models | Which AI Apps Have Sustaining Value vs Hype and Short Term Revenue

Taavet Hinrikus · Apr 28, 2025 · hedged

Having built companies makes you a better partner to founders, though whether it makes you a better investor is unproven

When raising for TransferWise, the most insightful conversations were always with investors who had built their own companies, and founders today appreciate that Plural's partners have been in their shoes

Scope: explicitly declines to claim it improves investment returns; 'time will tell'

9:35 20VC: VCs are Spreadsheet Monkeys and are Commoditised | Why Fees and Carry Misalign GPs and LPs | Why Founders Will Realise Multi-Stage Funds Damage Seed Rounds | Why We Need European Sovereignty More Than Ever with Taavet Hinrikus

Auren Hoffman · Nov 3, 2023

A founder who exited ten years ago is out of date on how to run a company today, so a currently operating founder-investor acts as the co-founder you can't hire

Almost everything operational has changed in the last seven years — customer success, new sales motions, product-led growth, the recruiting stack — even if the very biggest, timeless things haven't

Scope: the very big, timeless things are still current for older operators; medium and small things are what changed

5:43 20VC Roundtable: Why Early Stage Founders Should Not be Investing, Why Great Founders Have Low EQ, How the Structure of VC Firms Will Change, Will Founder-Led Funds Compete with Sequoia & Is Investing a Team Sport?

Mike Shebat · Nov 27, 2023

Operating ability atrophies like muscle when unused; after eight years away it took a full year to become a decent CEO again

Muscle memory only recovered gradually over the first and second years back in the seat

18:15 20VC: Keith Rabois and Mike Shebat on Creating an Olympian Mindset to Work Ethic, Why First-Time Founders are Better Than Serial Entrepreneurs, Why Remote Work Does Not Work, Why the Best Founders Always Start in their Teens & Why Companies are Cults?

Mark Suster · May 1, 2024

Having been a founder twice gives an investor a distinctive understanding of the founder journey, particularly the psychological burden of suppressing fear while projecting enthusiasm

He lived it — six months of cash left while telling employees everything was fine

Scope: about founder-turned-investors specifically

7:07 20VC: Mark Suster on The Biggest Fundraising Lessons for VCs, Why the Correction in Venture is Still to Come, Why Private Equity Will Replace IPOs and M&A as the Exit Path & The Woke Left and a Trump Administration; What Happens?

Harry Stebbings · May 8, 2024

Thirty-year-olds coming out of consulting to write $10M checks at large funds have no idea how hard it is to raise money or run a business

Having run an operating business and raised funds himself gives him a perspective they lack

31:30 20VC: GV's Tom Hulme on Why Investing in Foundation Models is like Investing in "Power Stations", The Conventional Wisdom in VC that is BS & Lessons from a 24x Angel Track Record, 255x on Robinhood and Making Billions on Uber

Sri Batchu · Jul 26, 2023

Operators have a diligence edge because they have worked directly with founders and, as buyers of B2B products, can judge whether a product would actually get bought and budgeted

Outside-in investors have to suss out founder competence indirectly; being an actual buyer cuts through the BS on whether people will buy the product

39:49 Operator investors diligence better since they are actual b2b buyers

Jason Lemkin · Nov 30, 2022

Conviction can form in sixty seconds when founders describe a problem the investor personally suffered from and pair it with strong early numbers

As a founder his Lucene-based search servers went down daily, so Algolia's search-as-a-service pitch landed immediately

6:46 Personally having suffered the founders problem produces near instant investment conviction

Jeff Jordan · Jan 16, 2023 · hedged

Building a network-effect business hands-on early, before any playbook existed, gives an investor a reliable instinct for which businesses can replicate a network effect and which cannot

At early eBay there was no playbook, so you built from the ground up, made mistakes and corrected them, which gave anatomical knowledge of how a network effect business works

4:46 Hands on early network effect building creates lasting pattern recognition

Jason Lemkin · Nov 3, 2023

The real reason founders are attracted to founder-led funds is brand, not operational experience

Founders, especially first and second time founders, have no time, and brands act as a proxy for quality; venture used to have only Sequoia and Kleiner as brands, Andreessen and YC changed the notion of brand, and founder-led funds are now new brands

6:15 Founder led fund attraction is brand driven not operating experience

Jason Lemkin · Nov 3, 2023

The world has changed and founders now have much more choice over who backs them, so old operator-vs-professional performance comparisons no longer hold

founders can make their own choices about investors today, right or wrong

12:19 Increased founder choice of backers makes old operator vs professional comparisons obsolete

Auren Hoffman · Nov 3, 2023

Operating gives an investing edge because you are a customer of startups' products and can fall in love with the product before the company ever pitches you

as a user/client you experience the product's quality directly and reach out to the CEO from that position, and one thing leads to another

12:52 Operating gives edge via organic product discovery as a customer

Jason Lemkin · Nov 3, 2023

The real operator edge is seeing which spaces are in motion — categories that look tired but are changing — which can be very advantageous at early stage

as a founder he was deep enough in call center and search pain to see Talkdesk and Algolia's categories shifting, even though everyone at his fund dismissed them as already done

14:07 Operator edge is seeing tired looking categories that are actually shifting

Danny Rimer · Jun 17, 2024 · hedged

Operators are not necessarily the best investors

Letting go of a failure is difficult for anyone, and operators are especially disposed to keep trying to fix it

51:00 Operators struggle more to let go of failing investments making them not necessarily better investors