VC Reflection: Betting on Founder-Investor Fit is not as good as betting on Product-Market Fit

Original author: rosie

Terjemahan asli: Luffy, Berita Pandangan ke Depan

Venture capital firms (VCs) operate on a simple premise: find companies with product-market fit, provide them with capital to scale, and then earn a return when the company grows.

The problem is that most VCs can’t actually assess product-market fit. They’re not the target customer, they don’t understand the use cases, and they rarely have the time to dig deep into user behavior and retention metrics.

So they adopted an alternative criterion: Do I like the founder? Do they remind me of other successful founders? Can I imagine working with them for the next seven years?

Research shows that 95% of VCs surveyed consider founders or founding teams to be the most important factor in their investment decisions. Not market size, not product appeal, not competitive advantage, but founders.

The so-called product-market fit is often just founder-investor fit with some revenue numbers attached.

The problem of selection bias

The reality of most venture capital meetings is this:

Investors spend 80% of their time evaluating founders — their background, communication style, strategic thinking, and cultural fit with the company. The remaining 20% of their time is spent focusing on actual product and market dynamics.

From a risk management perspective, this makes sense. Investors know they will be working closely with founders through multiple critical moments, market changes, and strategic decisions. A great founder with an average product will find a way out, while a mediocre founder with a great product will screw up.

But this creates a systematic bias toward founders who are good at communicating with investors, rather than founders who are good at communicating with customers.

The result is that companies can raise money but struggle to retain users. Products look reasonable in presentations but fail in real-world use. So-called “product-market fit” exists only in the boardroom.

What causes the “transformation epidemic”?

If you’ve ever wondered why so many well-funded startups pivot over and over again, founder-investor fit explains it perfectly.

Data shows that nearly 67% of startups stall at some point in the venture capital process, and less than half of them are able to raise a new round of financing. But here’s the interesting thing: those companies that do raise follow-up financing often change direction multiple times during the financing process.

When a company raises a lot of money based on the quality of its founders rather than on true product appeal, the pressure becomes to maintain investor confidence rather than serve customers.

Pivots allow founders to continue telling their growth story without having to admit that the original product isn’t working. Investors bet on founders rather than specific products, so they often support pivots that sound strategic.

This leads companies to focus on fundraising rather than customer satisfaction. They are very good at discovering new markets, building a compelling narrative, and maintaining investor enthusiasm. But they are not very good at building something that people actually want to use continuously.

Indicator performance

Most early-stage companies don’t have true product-market fit metrics. Instead, they have metrics that show product-market fit to investors.

Replace daily activity with monthly active users, replace user group retention rate with total revenue, replace natural user growth with cooperation announcements, and replace spontaneous user behavior with recommendations from friendly customers.

These aren’t necessarily false metrics, but they serve the investor narrative, not business sustainability.

True product-market fit is reflected in user behavior: people who use your product without prompting, who get frustrated when it breaks, who actively recommend your product, and who are willing to pay more and more for it over time.

Investor-friendly metrics appear in presentations: exponential growth charts, impressive brand partnerships, market size estimates, competitive positioning analysis.

A disconnect occurs when founders focus on optimizing for the second set of metrics (because that’s what gets them funding); whereas the first set of metrics is what determines whether the business is actually viable.

Why investors dont see the difference

Most VCs pattern match based on successful companies they have seen in the past, rather than evaluating whether current market conditions fit those historical patterns.

They’re looking for founders who remind them of previous winners, metrics that resemble previous winners, and stories that sound like previous winners.

This approach works when markets are stable and customer behavior is predictable, but it breaks down when technology, user expectations, or competitive dynamics change.

Investors who funded software-as-a-service companies in 2010 knew what successful SaaS metrics looked like back then. But they didn’t necessarily know what a sustainable SaaS business would look like in 2025, when customer acquisition costs would be 10x higher and switching costs would be lower.

As a result, they invest in founders who can tell a compelling story about why their metrics will resemble SaaS metrics from 2010, rather than founders who understand the realities of the current market.

No matter how much funding you raise, you can’t achieve product-market fit with money

The Cascading Effect of Social Proof

Once a company receives funding from a respected VC, other investors assume they have done their due diligence on product-market fit.

This creates a cascading validation where investor quality supersedes product quality. “We’re backed by a tier-one VC firm” becomes the primary signal of product-market fit, regardless of actual user engagement.

Customers, employees, and partners come to believe in the product not because they’ve used it and liked it, but because smart investors approve of it.

This social proof can temporarily replace true product-market fit, creating companies that appear successful on the outside but actually struggle with fundamental product problems.

Why this matters to founders

Understanding that fundraising is primarily about founder-investor fit, rather than product-market fit, changes the way you build a company.

If you’re just trying to attract investors, you’ll build something that’s funded but not necessarily sustainable. If you’re trying to attract customers, you might build something sustainable but struggle to get the funding you need to scale.

The most successful founders know how to create true product-market fit while maintaining the ability to communicate that fit to investors in a way that they can understand and get excited about.

This often means translating customer insights into investor language: showing how user behavior translates into revenue metrics, how product decisions create competitive advantage, and how market understanding drives strategic positioning.

Systemic consequences

Substituting founder-investor fit for product-market fit creates predictable market inefficiencies:

Excellent products without access to financing will receive funding that is not commensurate with their potential, allowing well-funded competitors to capture the market through capital rather than product quality.

Excellent financiers with mediocre products receive too much funding relative to their fundamentals, resulting in unsustainable valuations and inevitable disappointment. Studies show that 50% of venture-backed startups fail within 5 years, and only 1% become unicorns.

True product-market fit becomes harder to identify as the signal is drowned out by funding performance and social proof cascades.

Innovation is clustered around investor preferences rather than customer needs, resulting in oversaturated markets and underexploited opportunities.

What does this mean for the ecology?

Recognizing this pattern does not mean that the quality of founders does not matter, or that all venture capital decisions are arbitrary. Great founders do create better companies over time.

But it does mean that “product-market fit,” commonly used in venture capital, is often a lagging indicator of founder-investor compatibility rather than a leading indicator of business success.

The companies with the most sustainable advantages are often those that achieve true product-market fit before optimizing for founder-investor fit.

They understand their customers deeply enough to build products that are not influenced by investor opinions. They then translate that understanding into a framework that investors can evaluate and support.

The worst outcome is that founders mistake investor enthusiasm for customer validation, or investors mistake their belief in the founders for evidence of market opportunity.

Both are important, but confusing them can make it difficult for well-funded companies to create lasting value.

Next time you hear about a company having amazing product-market fit, ask them if they mean customers can’t live without the product or investors are raving about the founders. This distinction can mean the difference between seeing a sustainable business or a slick fundraising stunt.

This article is sourced from the internet: VC Reflection: Betting on Founder-Investor Fit is not as good as betting on Product-Pasar Fit

Related: CoinW Research Institute Weekly Report (2025.6.9-2025.6.15)

Key Takeaways ● The total market value of global cryptocurrencies is $3.41 trillion, down 1% from $3.42 trillion last week. As of press time, the total net inflow of the US Bitcoin spot ETF is about $45.61 billion, with a net inflow of $1.07 billion this week; the total net inflow of the US Ethereum spot ETF is about $3.85 billion, with a net inflow of $528 million this week. ● The total market value of stablecoins is US$260 billion, of which USDT has a market value of US$155.5 billion, accounting for 59.8% of the total market value of stablecoins; followed by USDC with a market value of US$61.6 billion, accounting for 23.69% of the total market value of stablecoins; and DAI with a market value of US$5.36 billion, accounting…