Fredrik Hjelm: ‘Founders bet their lives. VCs bet other people’s money’

“Founders bet their lives. VCs bet other people’s money,” Fredrik Hjelm, co-founder and CEO of e-scooter startup Voi, wrote in a social media post this week.

“Both are needed, it's just very different games,” he continued. “As a founder, you have all your eggs in one basket. Your money, time, emotions, and reputation – everything tied to one company. You need 100% of that one bet to work.”

Hjelm’s framing no doubt hits close to home for those founders whom invest their own money, take personal loans, or rely on early personal capital. If the startup fails – which happens around 90% of the time – entrepreneurs can lose savings and personal assets.

In contrast, most GPs typically invest an average of 2% of their own capital in a fund, according to recent research by Investec. They also spread their risks over a portfolio of companies, making the bankruptcy or poor performance of one company less high-stakes than for the founder of that company.

“Entrepreneurs live in all-or-nothing mode,” wrote Hjelm. “Investors live in portfolio theory. That’s why founders feel risk, and investors analyse it.”

Nevertheless, VCs still face financial and reputational risk. They invest other people’s money – that of their LPs – across multiple startups, and their performance affects fund returns, credibility, and their ability to raise future funds.

“Having been on both sides, there are definitely pros and cons with each,” said Bjorn Bergstrom, co-founder of Stockholm-based impact VC The Wild Ventures, in response to Hjelm’s post.

“As a founder, every day is a rollercoaster ride with crazy highs and lows and you feel all of it,” wrote Bergstrom. “As a VC, you definitely don’t suffer setbacks for a portfolio company as much as the founder, but you also don’t enjoy the highs as much.”

Chris Smith, managing partner at London-based pre-seed investor Playfair, believes that’s why it is crucial for founders to pick investors who understand these dynamics.

“Ask them about their approach to secondaries… and whether they have ever blocked an acquisition offer that the founders wanted to accept,” Smith wrote.