Are you an Entrepreneurial or VC-Backed Founder?
Before I go any further, I want to add a qualifier. As I use this article to explain the difference between an entrepreneurial founder and a VC-backed founder, I want to be clear that one is not better than the other. This is about a choice that is often made without full understanding or awareness of the decision.
My wife has been saying for years that I am a misplaced college professor. She believes that my calling is to teach, and she is right. I am passionate about ensuring you are educated, equipped, and empowered to make informed decisions. I’ve also realized that my teaching style leans heavily on analogies, which I will do in this article.
Comparing and contrasting entrepreneurial and VC-backed founders is like doing so between a homeowner and a house flipper. Both invest in a home but do so with a different desired outcomes.
A homeowner is interested in establishing a sense of place, a home, or a base camp. They want to put their stamp on the house. They choose to decorate in a way that feels cozy and comfortable. They put up pictures of family and friends. They create a safe harbor from which to operate. They connect with their neighbors and the broader community and recognize they are part of something bigger. Sure, they know they are building equity, but that is not the intrinsic motivation. What matters most is what they create for themselves, their families, and the community.
The house flipper is investing. It is not a home or basecamp; it is an asset. The house flipper makes improvements, decorating it neutrally. They want potential buyers to see themselves living there and making it their own. Theymay not use the best materials, keeping costs low. They are primarily worried about how things look rather than long-term sustainability. They aim to sell the property as soon and for as much as possible.
The above is the difference between entrepreneurial and VC-backed founders. The former are building something for themselves, a sense of place. They engage with their community of customers, collaborators, and champions. They focus on profit over growth and focus on sustainable unit economics. Yes, they recognize that they are building equity and one day might decide to sell. But that is not their intrinsic motivation.
In contrast, the VC-backed founder places growth over profit and may not focus on unit economics. They are trying to display traction, demand, and potential. The hope is that others will see what they can do with the business if it were part of their portfolio. The VC-backed founder aims to sell as soon and for as much as possible.
At the start of this article, I mentioned that this decision is often made without complete understanding or awareness. Many founders fund their businesses from angels or seed funds using instruments such as convertible notes. When you do this, you decide to be a house flipper rather than a homeowner. You now need to sell as soon and for as much as possible to monetize the investment.
Before you fundraise, decide. Do you want to be a homeowner or a house flipper? Do you want to be an entrepreneurial founder or a VC-backed founder?
