Today I was asked an interesting question: do I complete against other investors for deals? I decided to share my thoughts (based on limited experience). Some things to consider:
Rounds – Investment rounds frequently aren’t filled by a single investor (for one reason or another). Investors often work together toward a common goal of providing enough capital for the round to be closed.
Expertise – Many investors are great in one sector (e.g., healthcare) and good in lots of others. When an investor comes across a company in an industry they’re not great in, they may seek the perspective of one who knows the sector well.
Awareness – Investors sometimes make each other aware of founders and companies because it’s impossible to know all of them.
Stage – Investors often focus on a specific stage of investment. Outlander Labs is pre-seed, for example. Other stages include idea, seed, and series A, among others. If two investors are focused on the same industry but different stages, they’re probably not competing.
Community – For investors to do well, the overall community needs to do well. Investors know this, so they tend to cooperate rather than compete with each other.
LPs – Venture capital funds usually raise money to invest by obtaining capital commitments from limited partners (LPs). The relationship between LPs and venture funds is important. Great LPs can be helpful to funds. They can be sources of deals and also provide expertise. Sometimes LPs can be invested in multiple funds, which is useful because having LPs in common can be a relational bridge between investors.
In my opinion, the answer to the question, at least from a high level, is “no.” I’m sure there are exceptions on a deal-by-deal basis. I don’t see other investors as competition. I see them as peers working toward a common goal: helping great founders and companies reach their full potential!