Dear SaaStr: Why Is It So Easy For Founders With Previous Success to Raise Funds From VCs?

Because, while risky and more expensive, betting on repeat founders works. It doesn’t necessarily work better. But importantly, it does work. (And most things in venture don’t really work.)

The HubSpot co-founders, for example, had $100m exits the first time.  HubSpot was their second one.  Today, it’s worth almost $40 Billion.  As Dharmesh Shah co-founder and CTO notes in the SaaStr Annual deep dive below, the second time … they just really wanted to go big:

Folks that look at the data will tell you repeat founders aren’t necessarily a better bet than first-timers … which does seem to be true. Look at Marc Benioff, Mark Zuckerberg, Evan Spiegel, Bill Gates, Michael Dell, Airbnb, Stripe, Dropbox, etc.

However, the data is a bit misleading.

Because what a second-time successful founder does for a VC is take certain specific risks off the table:

• They (second-timers) know how to build a strong team. They’re already good at recruiting, and in fact, likely already have the “bones” of a great management team already on Day 1. First timers will struggle here, by contrast, for many many years.
• They know how to grow quickly — once they have product-market fit.
• They know how to fundraise.
• They know how to build strategic partnerships, and will get the benefit of the doubt here.
• They know how to close Big Deals. And they know how to go “enterprise” from Day 1.
• They generally won’t “sell too early.” If a founder sold for $150m last time, she probably is looking for $1b+ this time. This aligns well with the economics of big VC firms.
• They can, probably, be trusted (with capital, etc.)
• And importantly in some cases, they have a lot of social proof. Which can make it much easier to “get a deal done” in many VC firms. Social proof matters.

The above risks all exist with first-time founders to a much, much greater extent than second-time founders.

Look at Samsara, Wiz, Workday — big Second Timer success stories. They hit the ground running, once they achieved product-market fit at least.

In fact, $30B Samsara name “Samsara” is about … bringing the same team back together for a second one.  Our deep dive with the CEO Sanjit Biswas here:

The Samsara founders sold their first start-up, Meraki, for $1B.  A huge outcome.  But then they all got together for another shot.  And today Samsara is worth $30B.  That’s a bet many VCs want to make.

In fact, many VCs implicitly specialize one way or another.  They are more inclined to bet on second-timers, or first-timers.  I don’t know any VCs that will only invest in on or the other.  But I know plenty that strongly prefer one set of risks.

If those  are the risks that worry you … then betting on second-timers can be a good way to go. Even if the strict mathematical odds don’t really suggest it’s a “better” bet.

Which isn’t to say second-timers don’t have their own special risks. They certainly do. They spend a ton more money, and believe they can magically will product-market fit out of the thin air. Among other risks.