Founders vs Markets
4 mins read

The eternal question that all VCs struggle with: should one invest in an excellent entrepreneur in a weak or unclear market versus in a strong market with a Founder that one is not as excited about? Please don’t expect some super insightful answersmiley , but our blog would be incomplete without something on this topic so here is my tweetstorm from last year capturing my thoughts on this topic which (I believe) still hold true today:

1/ Founders or Markets?! On the eternal VC debate on backing great Founders or deep markets if one had to pick only one

2/ We at Matrix are unabashedly Founder backers - Founders First and Founders Last! Even if we get that call wrong – the intent is clear!

3/ IMO if one calls the market right and Founder wrong – a lot has to go right and fall into place to create a large outcome

4/ And there's always the better Founder chasing the same market soon enough! And likely wins! Examples all over history where 2nd mover won

5/ For the other way around – IMO best Founders create new markets if they get the first crack at it wrong. Apple didn't invent the phone!

6/ Think the largest market cap Founder–led tech companies for an answer! Google didn't invent search and Facebook didn't social networking

7/ Also, personally, I find it more stimulating and inspiring to work with excellent Founders who push & challenge one's thinking

8/ As opposed to a "consultant-type" (respectfully!) approach of building companies ground up to capture markets smiley  - as some investors do

9/ Yet some of the best known VCs and VC firms are vociferously market backers! And have the returns to boot! Wonder what am missing...  


To put the above in context, given that each Founder brings different strengths to the table and no one is perfect, at Matrix we think more about FPM (Founder–Product–Market) or FBM (Founder–Business–Market) fit (borrowed from the Product–Market– Fit concept). A couple of questions we ask ourselves are:


  • Is it a “thin stack” business? Often in such instances, if the product hits PMF, it gives one a clear shot at victory without building a very large organization and other complexity – e.g. WhatsApp would fall in this category, as would, one could argue, Facebook and Google
  • Is it a “full stack” business? As it suggests, one needs to build a number of pieces of the business for it to work – e.g. most marketplaces fall in this category especially those with deep integrations on the backend

It takes different archetypes depending on the above distinctions in our view – though honestly, there are enough counter examples to make this a very loose principle at best.

And so when in doubt, we have to go back to Rule #1 – back the best (Founders) and forget about the rest (Market)!