Can founder-led venture funds compete with legacy multi-partner firms like Sequoia?

Jason Lemkin · May 6, 2022

Founder-led funds writing checks in five minutes with no diligence are the ultimate disruption of venture and are very hard for traditional investors to compete against

He sees founders with their own funds or large scout funds put $3-4M into a round in a single day, deciding purely on whether they think the founder is great — which is great for the founder but leaves traditional investors unable to match the speed

47:10 Founder led funds instant no diligence checks are a disruptive threat traditional investors cannot match

Harry Stebbings · Nov 3, 2023 · hedged

Whether a founder-led fund can compete with Sequoia depends entirely on which founder it is — some individual founders could pull it off

Brand-name founders like Ryan Petersen or Sam Altman would have the pull to do it

38:23 Depends entirely on which founder some could pull it off

Jason Lemkin · Nov 3, 2023 · hedged

There is a crossover point where competing at scale requires 20-50 people, which breaks the traditional founder-led fund model unless the founder is merely a figurehead — and 'founder-fronted' funds are meaningfully different from genuinely founder-led ones

Managing a 40-50 person firm is a management burden a working founder won't take on, and getting a call with the famous founder once a year is not the same as having them as the partner on your deal

38:32 Scaling past 20 50 people breaks the founder led model unless merely a figurehead

Auren Hoffman · Nov 3, 2023 · hedged

A founder-investor is often better off hiring a full-time CEO to run the firm than running it themselves

Flex Capital would not have been nearly as successful if he had been CEO rather than a dedicated full-time CEO

39:05 Founder investor better off hiring full time ceo to run firm

Jason Lemkin · Nov 3, 2023

An advantage of taking money from a founder-led fund is that those investors won't sweat small performance misses or portfolio setbacks the way traditional VCs do, which founders find appealing

To raise such a fund you must already have had success as a founder, so your job and career are not on the line the way a non-managing partner's is — traditional VCs get overly dramatic about small misses and whether they can do their pro rata

39:15 Founder led funds dont sweat small misses since career isnt on the line

Jack Altman · Nov 3, 2023 · hedged

How much an investor gets upset about portfolio setbacks is more a matter of personal temperament than of being a founder-led fund — plenty of founders are tough on other founders, so it is case by case

His own equanimity is his constitution, present even at Lattice, and he has seen many founders get quite upset when things aren't done their way

40:34 Investor reactivity is personal temperament not fund type driven

Auren Hoffman · Nov 3, 2023

Founder-led VCs are more accommodating than traditional VCs when negotiating immaterial deal terms, because traditional VCs get hung up on terms that cannot affect their returns in a power-law world

Most terms in a term sheet or docs will never change the outcome, and returns are power-law driven, yet traditional investors fixate on them anyway

41:10 Founder led vcs are more accommodating on immaterial terms since power law returns dont hinge on them

Harry Stebbings · Nov 3, 2023

Critics argue founder-led firms have relaxed governance standards — waiving board seats in cases where governance was needed

41:59 Founder led firms relax governance standards waiving board seats

Jason Lemkin · Nov 3, 2023 · hedged

Founder-led funds do less diligence and more pattern matching, but are probably not worse on oversight of portfolio companies

42:34 Founder led funds do less diligence but oversight quality is comparable