The Single Founder Conundrum: Why VCs are Reluctant to Back Solo Entrepreneurs

In the vibrant Indian early-stage ecosystem, we have come across countless passionate entrepreneurs with innovative ideas and pathbreaking solutions to real, hard world problems. However, at times, a recurring pattern emerges – the single founder conundrum. Over the last few years, we have observed first-hand hesitation of many VCs, when it comes to backing solo founders. While there are exceptions to every rule, it’s crucial to understand why multi-founder teams are generally preferred and what this means for aspiring entrepreneurs.

Now, before you think we're here to rain on the solo founder parade, let us clarify – this isn’t about saying solo founders cannot succeed (we’ve backed some exceptionally good solo founders previously), this is about understanding why VCs are often reluctant to place their bets on lone wolves.

The VC Perspective: Mitigating Risks

Venture Capital is inherently about managing risk. When evaluating startups, investors look for factors that can potentially mitigate the numerous risks associated with early-stage investments. When they look at an early-stage business, they’re not just seeing the shiny idea or an impressive pitch deck. They’re scanning for anything that might tip the scales in the favour of success. And more often than not, multiple founders look like a safer bet than a solo act.

Why? Well, it’s Simple:

• Diverse Skill Sets: When building a business ground up, having a Swiss Army knife of skills is golden. One founder might be a coding wizard, while another could charm clients like a modern-day Pied Piper. It’s like having Batman and Iron Man on the same team – pretty hard to beat.
• Reduced Founder Dependency: With a single founder, it’s all eggs in one basket. If that founder burns out (and trust me, startup life can be a fast track to burnout city), the whole venture could go up in smoke.
• Emotional Support: Realistically, building a venture is an emotional rollercoaster. Having co-founders to share the burden, celebrate victories and weather storms together can be crucial for long-term success and founder mental health.

Numbers Don’t Lie

By now you are probably thinking, “But what about Vijay Shekhar Sharma?” and you’re right, there are success stories when we speak about solo founders. However, they are exceptions rather than rules. Research consistently shows that teams outperform solo founders:

• A study by The Wharton School¹ found that solo founders take 3.6 times longer to outgrow the startup phase compared to two-person founding teams.
• First Round Capital’s research² indicates that companies with more than one co-founder outperformed solo-founder companies by 163% in terms of revenue. That’s not just beating the competition; that’s lapping them.

These statistics are hard for investors to ignore, especially in a market as competitive and challenging as India.

The Indian Context

In India’s rapidly evolving startup landscape, the challenges for solo founders are often amplified:

• Market Diversity: From bustling metros to tier-3 cities, India is not just one market; it is incredibly diverse, with varying consumer behaviours across regions. A diverse founding team can navigate this complexity better
• Scaling Challenges: In India, when you scale, it’s zero to hundred real quick. A solo founder might find themselves drowning in work faster than you can say “unicorn”
• Network Effect: Warm introductions and networks play a crucial role in the Indian ecosystem (as in any early-stage ecosystem). A team of founders typically brings a broader network, increasing chances of securing partnerships and funding

Not All Hope is Lost, Solo Troopers

While the odds may seem stacked against solo founders, it’s not an insurmountable challenge. If you’re a solo founder reading this, don’t despair.

Here’s your game plan:

• Build a Rockstar Advisory Board: Surround yourself with mentors who can fill skill gaps and provide guidance. This, not at the cost of “2% advisory equity”
• Hire Smart, Hire Fast: Bring in top talent early. Think of them as your co-founders in spirit
• Stay Open to Co-founders: Sometimes, the perfect partner comes along after you’ve started. Be open to that possibility
• Showcase your network: Demonstrate that you have a strong support system and can leverage external expertise when needed
• Traction is your Trump Card: Nothing speaks louder than results. Show them the money (or at least, the growth)

The Merak Perspective

At Merak Ventures, while we don’t have a hard and fast rule against solo founders, we do look for certain qualities that can offset the perceived risks:

• Exceptional domain expertise and a proven track record
• A clear vision for building and scaling a team
• Self-awareness about personal strengths and weaknesses
• Openness to guidance and the ability to attract top talent

Remember, at the end of the day, we’re looking for exceptional founders building game-changing B2B Tech solutions. The composition of your founding team is just one piece of the puzzle – albeit an important one. We evaluate each opportunity holistically, considering the market potential, product innovation and the founder’s ability to execute and scale. In fact, this has led us to backing solo founder teams in the past.

To all the solo founders out there – your journey may be more challenging, but it’s not impossible. Focus on building a stellar business, surround yourself with great people and stay open to evolving your team and structure as you grow.

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¹ The Founder Factor on Startup Success: Solo vs. Co-Founders

² First Round Capital Research – 10 year project