You are a startup founder with meaningful recurring revenue, a good team, and customers buying your beta product. You’ve had success fundraising, with half the money promised by willing investors. But here’s the problem: no one will commit until a lead investor steps forward. Even after 50 pitches and countless follow-up meetings, no one has stepped forward to lead your round. So, where do you go from here?
We regularly hear this. It’s often voiced as a complaint, suggesting that too many venture capitalists are passive investors, unwilling to do the hard work of leading a round. However, it’s essential to consider the mindset that characterizes VCs – one that prioritizes rapid returns due to the constraints of their investment funds and the demands of their investors (Limited Partners, or LPs). These principles influence how VCs approach decisions, including whether to lead a fundraising round.
We reached out to 88 VCs worldwide to understand their thinking. They’d led or co-led 53% of their fundraising rounds over the past 12 months, which is higher than we expected, based on the chatter from entrepreneurs. If we’re talking about VC-investable startups, are entrepreneurs not understanding the criteria that VCs use when deciding to lead or not? Could there be too many inexperienced VCs talking with too many weak startups?
What is the role of a lead investor? It varies, but typically, they will put up some capital themselves, even a large amount, run the due diligence process, take a board seat, and iron out any differences between the prospective investors on the terms of the investment. They’ll also likely put forward the key person nurturing the founder after the investment is made and manage the syndicate when problems occur or when it is time for the next round.
When asked why they would not lead but prefer to be passive investors, the overriding response (in 57% of cases) was that the startup already had a good lead investor. The second most important reason (31%) was that the amount they would invest wasn’t worth the time and effort for a deep due diligence.
“Leading, co-leading, or following all require significant involvement and diligence, including board observer participation and active support,” said Sergio Monsalve GP, Founding Partner, Roble Ventures (previously Partner, Norwest Venture Partners). “If we’re stretched thin, we will not invest regardless of who is leading. We always rely on our diligence.”
Brynne Kennedy, Managing Partner & Cofounder, Smart Society Ventures, added, “We’ll lead a funding round if we feel that the company’s domain is a particular expertise of ours, and we can materially add value to the board, and if we have high conviction on the company, team, and opportunity.”
In addition to a great product, a perfect team, a growing market, and a good fit with the VC fund’s investment thesis, what could prompt a GP to want to take the lead on an investment? The most compelling reason (58% of responses) was “a serial entrepreneur we’ve invested with previously”. The second most likely (48%) was that “already-committed VC funds are experts in the startup domain.” Third, at 33%, was “already-committed investors have brand value for us.” Venture investing is a people game.
An interesting observation was the significant difference in behavior based on the experience of the GP. The most experienced (more than 10 years) and the least experienced (less than five years) were most likely to lead or co-lead. Those with five-to-10 years of experience were more likely to be passive investors.
One possible explanation is that young VCs don’t realize how difficult it is to manage a syndicate or run the due diligence. On the other hand, it could also be that less-experienced VCs do it to get into the game, get known, and get started rather than waiting to be invited in. By the time they reach the five-year mark, they’ve earned their scars and have a network of VCs who know them. The most experienced VCs know what they’re doing, other VCs know and trust them, and they have deal flow.
“I would say that less experienced GPs managing new funds think it’s an easier business than it is,” observed Dag Syrrist, a Silicon Valley VC veteran. “It is excessively difficult to outperform over time. The best of the best is wrong seven to eight times out of 10 times that they make a bet and have relatively long stretches of sub-par performance.”
To lead or not to lead brings up the question of deal flow. VCs are master networkers. Our respondents spent, on average, 27% of their time networking, and 25% of their deals came from their networks. However, “other investors” were the most important source of deals (32%).
“VCs generally aim to be collaborative, both with founders and each other, as the industry thrives on long-term relationships,” added Ariel Barack, CEO of Ordway Selections.
We often hear that founders and their teams are the most important investment criteria, so we asked how frequently VC funds use outside expertise to evaluate the key people in the company.
A fascinating insight emerged when we drilled down on the question of what percentage of deals came from proactively reaching out to startups: just 11% overall. For experienced GPs, those with more than 10 years of VC investing experience, it was 23%, but for those with less than 10 years of experience, it was about 5%.
“Experienced investors know what they are looking for and seek out founders before they may even be raising capital to avoid pricing impact,” said Syrrist. “By far the best outcomes are investments made, shaped, or crafted versus those responded to. But keep in mind, the truly outstanding outcomes still come from taking bets when it does not look very likely or even possible.”
“By reaching out to a founder early, we can build a relationship in preparation for a future growth funding round. We like to start tracking companies early to get to know the team and domain and see if the startup does what they say they will, giving us a sense of their ability to execute.” –Brynne Kennedy
“The advantage of directly initiating contact with a startup ourselves is three-fold.It demonstrates our focus as we’ve actively sought out a company’s offering based on our investment thesis versus a referral, there can be a “first mover advantage” if other major investors in your network haven’t engaged with the company yet, allowing us more influence to shape a deal opportunity, and there can be less bias and preconceived notions going into the initial company interaction versus having the referral’s perspective on the company as a starting point. While I always value our network’s perspective, sometimes we benefit from drawing our own initial conclusions.”
– Chelsea Plant, 3M Ventures
We often hear that founders and their teams are the most important investment criteria, so we asked how frequently VC funds use outside expertise to evaluate the key people in the company. Anecdotal evidence suggested that some VCs were bringing in HR experts or using psychometric tools, but our data does not show this as a pervasive trend. GPs with five to 10 years of experience were likelier to do this, but only in 7% of their deals over the last 12 months.
“We haven’t used HR experts, but we’re testing AI, which research shows is a more effective analyzer of the Big Five personality traits (openness, conscientiousness, extraversion, agreeableness, neuroticism). We feed 2-3 hours of founder call transcripts into an LLM to generate structured feedback. It’s still a work in progress, but I’m confident this will turn a highly qualitative input into a more quantitative output.”
– Charlie Graham-Brown, GP, Seedstars International Ventures
“I firmly believe there is nothing more important than the individuals themselves and the overall caliber of the team. We dedicate significant time to engaging with them directly and assessing their vision, resilience, and ability to execute. I’m not convinced professional HR experts are well-equipped to evaluate founders for this specific context, as founders often display highly atypical personality traits and skillsets, which are critical for tackling the unreasonable challenges of creating something groundbreaking.”
– Steve Salom, Partner, ACE Ventures
Navigate the venture capital landscape with confidence
The VC industry, like startups themselves, operates in cycles.
Raising capital will always be time-consuming and stressful. The good news is that many VC funds are willing to lead rounds, particularly those with experienced GPs who may even reach out proactively. However, founders must be tactical in how they approach their fundraising efforts to improve their chances of securing a lead investor.
The VC industry, like startups themselves, operates in cycles. The market is shifting toward a more disciplined phase in which the strongest startups and investors will continue to thrive. As Syrrist notes: “It’s not a spectator sport or for the faint of heart. Right now, we’re coming out of an over-funded tourist-driven phase (investor and founders both), and we’ll see the cycle again weed out the underperformers – as it should.”
DesJardine, M., & Shi, W. (2023, August 8). How to attract the right shareholders. Harvard Business Review. Retrieved from https://hbr.org/2023/08/how-to-attract-the-right-shareholders
Gompers, P., Gornall, W., Kaplan, S. N., & Strebulaev, I. A. (2021). How venture capitalists make decisions. Harvard Business Review, 99(2), 70–79. Retrieved from https://hbr.org/2021/03/how-venture-capitalists-make-decisions
Jungmann, S., & Reschke, Á. (2024, January 18). How to raise money for your deeptech startup. Sifted. https://sifted.eu/articles/how-to-raise-money-for-your-deeptech-startup
Ryan, P. (2025, February 7). Solo GPs: Why you probably shouldn’t raise a fund. Sifted. https://sifted.eu/articles/solo-gps-dont-raise-fund
Sauvage, N. (2024, September 9). Why VCs should use net promoter scores with founders. Harvard Business Review. Retrieved from https://hbr.org/2024/09/why-vcs-should-use-net-promoter-scores-with-founders
Strebulaev, I. A., & Dang, A. (2024). Make decisions with a VC Mindset. Harvard Business Review, 102(3), 132–141. Retrieved from https://hbr.org/2024/05/make-decisions-with-a-vc-mindset
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