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Understanding the Different Types of Venture Capital Investors
Introduction
There’s tons of advice out there about how to approach venture capitalists for startup fundraising, but in my experience as both a former VC and current founder, I’ve found there is no one-size-fits-all method.
Venture capital investors get into the industry for many different reasons and come from a wide variety of backgrounds that shape their perspectives on the companies they consider for investments.
Founders must understand which kind of VC investor they’re dealing with, to have the best shot at closing a funding round. Here are the four personas of venture capital investors, and what founders can do to partner with them:
#1: The Follower
It’s incredibly difficult to predict which companies will be big winners in the long run, and for early-career investors, getting your first 3-5 investment bets wrong can limit your future career prospects. That’s why investors in the follower category care that other credible brands are investing alongside them: latching onto big-name interest can help de-risk high-pressure investment decisions. This is the VC version of, “you don’t get fired for buying IBM.”
These investors will never go out on a limb to fund something solely based on its thesis or early business metrics. When you dig into their portfolios, you’ll see followers rarely lead funding rounds and are investing alongside brand-name investors 95% of the time. If they do lead an investment, the company is usually led by a well-known repeat founder or a close friend, or the company has already raised 2-3 financing rounds from blue-chip investors, which makes leading a Series C+ feel safe.
This is the most common type of VC persona, and the trend-following approach can be quite successful. In fact, there is a whole discipline of public market quant investing called “trend following” that has made this strategy systematic. Despite its strong academic validation as an investment strategy, nobody likes to be called a “follower” and because of this, followers will almost never admit to being followers.
For founders approaching this type of investor, it’s critical to get one of the other three types of VCs on board before reaching out. With that investor’s term sheet in hand, you can then syndicate your round to one or more followers.
#2: The Academic
Investors in the academic category have clear theses and do not stray from them. They deeply understand your company’s space and have the knowledge and network needed to conduct due diligence on the business. Academic investors can become extraordinarily valuable thought partners and almost feel like co-founders in how they help you build on your thesis.
Academics are leaders. At the early stage, they are often the first investors or lead rounds largely by themselves. At later stages, they are not afraid to invest at inflection points and often catalyze turnarounds. This information is more difficult to see publicly but easy to detect in conversations. If you suspect an investor may be an academic, ask them what investment theses they’re working on. If the answer sounds vague, they are a follower or a feeler. If it sounds highly specific, they’re an academic.
For example, if you hear, “we’re really interested in how AI may be applied to vertical software,” they are a follower or feeler. If, instead, you hear something that sounds highly specific and even a bit confusing like, “I’ve met every neural chip company to launch over the past seven years and am convinced that analog chips are the only way to apply AI inference at the edge,” they are an academic.
#3: The Feeler
Investors in the feeler category care about the founder and the company’s story and values. They’re looking for a reason to believe that the company will be world-changing, even if the numbers don’t fully support it yet. They may be interested in clever pivots or plans that may suddenly unlock growth. They are also interested in investing quickly and are more willing to pay a premium or offer better terms to do so.
Companies that fit an investor’s personal narrative or worldview will be more attractive to a feeler. Founders should connect with these investors on shared backgrounds or interests. Once a feeler comes around on the mission and story, they tend to be strong and reliable backers over the long haul. During due diligence, conversations with a feeler investor are often more wide-ranging and personal than with the other categories of investor.
For founders approaching a feeler investor, focus on the story, the team and the mission. Be crisp and clear on what you do and why it’s important, but don’t worry as much about the numbers and metrics. If you can help paint the picture of a clear problem or deficiency in the world that your product or service addresses, that could be the catalyst to bring them in as a backer.
#4: The Opportunist
Investors in the opportunist category are looking for knockout deals or outliers. They invest in spaces and products they may not know much about, simply because they see the potential for explosive returns. Opportunists may have shorter attention spans and can be finicky in what they invest in and when.
For a founder, opportunist investors can be the most frustrating because deals come together quickly or fall apart just as fast, often without a clear explanation why. However, if you can snag one, opportunist investors can also be the most valuable; they often open doors and create market validation beyond the liquidity they bring.
To approach an opportunist investor, it’s important to demonstrate that your company has a competitive advantage that could lead to a large exit, and that you’re the perfect team to take advantage of that market opening.
Conclusion
When understanding the four types of venture capital investors and the personas they embody, founders can more effectively target investors whose investment style, risk tolerance and company stage preferences align with their startup.
Investors value entrepreneurs who have taken the initiative to understand and respect their investment philosophy and are better equipped to help founders achieve success when the relationship is built on mutual trust and understanding.
FAQs
What are the four personas of venture capital investors?
The four personas of venture capital investors are the Follower, the Academic, the Feeler, and the Opportunist. Each investor has a distinct investment style, risk tolerance and company stage preferences that help a founder understand how to more effectively target investors whose strategies align with their startup.
What is the Follower investor persona?
Investors in the Follower category care that other credible brands are investing alongside them, which helps to de-risk high-pressure investment decisions. These investors will never go out on a limb to fund something solely based on its thesis or early business metrics. When you dig into their portfolios, you’ll see followers rarely lead funding rounds and are investing alongside brand name investors 95% of the time.
What is the Academic investor persona?
Investors in the Academic category have clear theses and do not stray from them. They deeply understand your company’s space and have the knowledge and network needed to conduct due diligence on the business. Academic investors can become extraordinarily valuable thought partners and almost feel like co-founders in how they help you build on your thesis.
What are Opportunist investors looking for?
Investors in the Opportunist category invest in spaces and products they may not know much about, simply because they see the potential for explosive returns. Opportunists may have shorter attention spans and can be finicky in what they invest in and when. They are looking for knockout deals that have a competitive advantage and could lead to a large exit.
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