Most entrepreneurs are familiar with the concept of product/market fit. It’s the degree to which a product satisfies market demand. But that’s not the only kind of fit venture capitalists are looking for when deciding which companies to invest in. They’re also looking for something I like to call company/entrepreneur fit.
Company/entrepreneur fit is when the type of company — and the needs that company is going to have — matches the entrepreneur’s approach to building companies. It’s equally as important to a company’s success as product/market fit, but it’s not talked about as much because it’s harder to quantitatively evaluate. After all, how can potential investors know the inner workings of an entrepreneur’s brain?
Instead of being able to use data to determine company/entrepreneur fit, investors have to rely on qualitative strategies like questions and hypothetical scenarios. Here’s an example of a hypothetical scenario I like to give entrepreneurs in order to see if they’re building the right kind of company.
Imagine I’m handing you $1 million, and you have to immediately invest it — at equal terms and equal valuations — into one of the following two companies using only on the information I’m providing below:
Company A — This business is based around a technology the developers consider “industry-revolutionizing.” The product is complete. The company even owns a few relevant patents. Initial trials of the product with friends and contacts in the industry have been positive. The only thing the company has left to do is start selling the product.
Company B — This business has no product. It’s hardly even a company. It’s really just a few friends running an Instagram account with 10 million followers and no monetization.
Using only the above information, which company would you invest in? Company A, or Company B?
The above scenario is a hypothetical — a mini-quiz of sorts — I often give new entrepreneurs the first time I meet with them because their answers tell me a lot about their approach to building companies and what they prioritize. In a way, it also reveals how — or even if — I’m able to help them.