operator experience become crucial in venture capital in recent years. Pure-play financial VCs are falling out of favor with startups compared to investors who gain experience alongside their money.
But not all operational backgrounds are equally useful. If a VC has experience in another field, it may not translate well – if at all – to a startup, and advice on certain business decisions can quickly become outdated. There is a growing group of VC funds led by people who think they might be better suited to backing companies since they are currently startup founders themselves.
These firms and founders may be onto something. Recent data from AngelList, collected for Flex Capital, shows that the founder-led funds raised through its platform outperformed the other funds raised on AngelList.
In fact, venture capital funds led by active founders outperformed funds without that structure in all percentiles of fund performance when comparing multiples by invested capital, according to the data. Funds in the 90th percentile saw performance metrics that nearly doubled the number of companies with no founder at the helm.
Let’s be clear, this data certainly doesn’t paint a complete picture. For example, we don’t know how founder-led funds compare to operator-led companies. This dataset is based only on funds raised on AngelList, which is clearly limiting, and it’s unclear what the structure of these companies looks like; some may be led by a founder but have full investment teams.
But it does beg the question: Are active founders better investors than, essentially, anyone else?
For Jeff Lu, a general partner at Flex Capital, the value of this model is clear.
His company has three founders, two of whom currently work as operators, and Lu, who serves as a full-time investor. “I’ve had to pitch Flex a thousand times over the past three years, and not once have I ever had to explain to a founder why this is better,” Lu told MinRegion+.