VCs make two common errors, the data shows

Excerpt from the Startup Genome Report — A new framework for understanding why startups succeed:

1. Many investors invest 2-3x more capital than necessary in startups that haven’t reached problem solution fit yet. They also over-invest in solo founders and founding teams without technical cofounders despite indicators that show that these teams have a much lower probability of success.

2. Investors who provide hands-on help have little or no effect on the company’s operational performance. But the right mentors significantly influence a company’s performance and ability to raise money. (However, this does not mean that investors don’t have a significant effect on valuations and M&A.)

Notes:
(1) Re. “Many investors invest 2-3x more capital than necessary in startups that haven’t reached problem solution fit yet.” Cf. (i) The real difference between funding rounds and (ii) Why you should bootstrap your startup before raising money.
(2) Re. “Investors who provide hands-on help have little or no effect on the company’s operational performance.” Cf. VC pitfalls to watch for: trying to fix companies.

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