It’s always been easier to raise cash from investors as a serial entrepreneur than as a first-timer.
For well over a decade, repeat founders have consistently raised larger funding rounds from VCs across all stages of the startup lifecycle globally, according to data from Pitchbook and Morningstar.
As clichéd as it may be, it's still relevant to remember that 90% of startups fail. But regardless of whether a founder’s first business was a success or a flop, VCs know they’ll have picked up firsthand knowledge that can’t be beat. Indeed, its estimated that 65% of Europe’s unicorn founders have started at least one company before.
Now early stage founders say that investors are looking even more favourably on repeat founders as the tech sector cools. With fundraising tougher for VCs and the exit landscape bleak, VCs want to cut down on risk, they say.
Lav Odorovic says his repeat founder status was “definitely a door-opener” when he began his new venture Relio — he raised a $3m funding round in January this year. He previously cofounded German bank Penta, which was acquired by larger French rival Qonto last year.
“No matter how good your case is and despite all the due diligence, a VC will never have a clear-cut 'yes' or 'no' answer. As an investor, there's still a moment of taking a leap of faith and this is probably where 'He’s done it once. He can probably pull it off again' kicks in,” he says.
VCs seeking the perceived safe bet of repeat founders is also a generational issue.
Emma Phillips, partner at LocalGlobe, says that some founders who raised capital for the first time between 2019 and 2021, when capital was abundant, are failing to adjust their expectations to the new environment.
On the other hand, “people that built businesses in the 90s, 00s and early 10s took heavy dilution for small funding rounds, so they have that realism of how to raise money now and make sure you choose the best investors for tough times,” she says.
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Repeat founders have also learnt that the no’s and ghosting are all part of the game
Another appeal of established founders: they have a wide network of other investors they could also tap for cash if the going gets tough down the line. All but one of the investors Sifted spoke to for this piece cited existing investor connections as an attractive trait among repeat founders.
“Repeat founders have also learnt that the no’s and ghosting are all part of the game, so they manage the fundraising process better,” says Phillips. “This often results in more meetings being made more quickly, and thus being able to raise more money, too.”
Pitchbook and Morningstar research shows that serial entrepreneurs have a smaller gap between founding their company and raising their first VC round: even in 2021, at the peak of the tech boom, the median gap was 1.3 years for serial entrepreneurs and almost double for novices, at 2.2 years. Investors say the downturn will only accentuate that gap.
Repeat founders have managed cash burn
Not only are serial entrepreneurs better at raising money, they know how to spend it.
“Repeat founders have been in the trenches and built up a distinct set of skills that are valuable during adverse economic conditions,” says Antler partner Ronald Jan Schuurs. More than half of the founders in the VC firm’s Benelux portfolio — which Schuurs manages — are repeat founders.
“This includes a disciplined approach to financial and cash management, and the ability to navigate between higher and lower burn rates," he adds.
In the current environment, Odorovic says that there’s more emphasis on monetising and becoming profitable quickly than there was when he founded Penta. For this, he says his experience of how long it takes to find product-market fit has helped immeasurably.
“VCs are not willing to subsidise growth to the degree that we have seen in the past,” Odorovic says. “You just don’t repeat all the typical startup mistakes from your first venture. I am now anticipating challenges earlier and have learnt how to set up a sustainable strategy.”
Being a repeat founder also makes hiring easier, Odorovic says, as he’s learned how to spot good talent, while potential hires are attracted to his more established status.
“Having built Penta also made it easier for me to find great people to join Relio in the early phase, when there was just a vision. Moreover, you have a better idea of how to structure a team regarding skill sets and profiles.”
Less hunger and drive?
Not all VCs say they’re chasing repeat founders, however. Virginia Bassano, investor at Eight Roads, points out that some of the most successful entrepreneurs in recent history, including Brian Chesky (cofounder and CEO of Airbnb) and Niklas Adalberth (cofounder of Klarna), had no entrepreneurial experience before they set up their businesses.
Eight Roads’ European portfolio of 45 investments is made up of 55% first-time founders and 45% repeat founders. Seven companies are unicorns, and for those companies, there is “no direct correlation” between being a repeat founder and reaching the $1bn valuation, Bassano says.
She says this boils down to the first-time founder USP: “Although repeat founders bring valuable experience and expertise to the table, first-time founders often have fresh perspectives and a level of hunger and drive that is difficult to reproduce.”
Are you an early-stage founder trying to raise right now? Does this article resonate with you? I'm keen to hear about your experience.