Founders investing in Founders (FIF)

Many times a week I get the following question: "where do you get your (investment) dealflow"?

This is a common topic among business angels. Everyone assumes business angels swim in dealflow, from the outside, but the reality is that good dealflow is scarce.

We all get tonnes of LinkedIn and cold email with companies from all over the world, which to me is a red flag in and of itself. It's a sign that you don't have a trusted network and that you're contacting out of desperation, to everyone and anyone.

To start with, if the company is from another country, it's hardly ever a good investment. You don't have a means to run a proper reference check on them, you're not acquainted with their local/regional/national regulations and lots of other constraints. Unless you know that market very well, I advise against doing this kind of deals.

But I wanted to focus on a subset of investments I like a lot: Founders Investing in Founders. Only 10% of my investments have been in generalist rounds (this includes pledge funds and investment platforms). The rest, FIF.

I, for one, know my limitations. I have built an investment thesis in my almost ten years investing. My first investment was in 2015. Since then, I have fine-tuned my investment thesis: I invest in tech companies, sector-agnostic in the B2B space or B2C-that-don't-know-yet-they'll-be-B2B not run by first-time founders. Seems complicated, but it's a way to narrow down my scope, optimise for mental bandwidth and I can also have an impact in them.

Every new investor faces the solitary task of finding dealflow, and the first years you will most likely eat the leftovers of others. I cover this in a bit more of detail in this other blog post: my guide to start investing.

After a few years in the scene, I started getting invited to closed circles of serial entrepreneurs because I had befriended some of them and I've found that the best and most fun investments I've made are those where only founders are invited to invest.

This happens when the seasoned entrepreneurs create a new company and want to try fast if it sticks. They invite their closest friends in the industry, for a small round of extreme high risk and extreme high reward. No professional investors, business angels or VCs are invited because these rounds are pre-product, pre-team and almost pre-idea.

Founders investing in founders also creates another interesting dynamic: we get VERY involved in helping a fellow out, often spending hours per week testing the product, brainstorming and ideating as if the company were hours. We - at least I - invest an irrational amount of time in someone else's company to help shape the 0 to 1 because no investor that hasn't been a founder can provide this value.

This 0 to 1 isn't getting a product to the market and finding the first customer. I'm talking about thinking about the name, buying the domain, installing the first version of the app, choosing between different layouts for the landing page, testing their subscription mechanisms, designing a logo and more.

Oftentimes, these companies die within the first 12 months and no one ever heard of them, but one could argue it's thanks to them that serial founders find success more often: maybe they try more things (and kill them sooner to move to the next thing).

FIF is rapid prototyping. It it doesn't stick within the first 10-12 months, shut it down.
FIF is not burning bridges with investors you need later on. They wouldn't understand it and, most likely they'd slow you down.
FIF is a sort of entrepreneurs anonymous: we all have deceased projects we don't talk about. But only the closest friends got to see them and know of their short-lived existence.
FIF is, to me, the only kind of smart money there is out there, and I'll die on this hill.
FIF has rippling effects: by helping someone else start their new venture, you don't only get to see new things but also it might fire you up to quit your job and create something yourself.

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