Dear SaaStr: Will a VC Invest in a Venture That Is Or Can Be a Competitor To An Existing Investment?

As a rough rule: the larger the check, the less likely a VC will invest in a direct competitor.

If you are Ycombinator or another top accelerator, you kind of can’t help it. You invest so early, sometimes it’s not totally even clear what the company will really do.

By contrast, if you do Series D investing with $50m+-$100m+ checks, and put the whole fund at risk on that deal … it’s very rare you’d do a competitive investment.

In between, most VCs try not to do competitive deals on purpose. Founders don’t like it, it creates perceived (if not actual) confidentiality issues, and it creates “mental” conflict as the partners share details around their companies.

But, the reality is, things change and companies tilt. You can often end up with 2 semi-competitive companies this way, even if they didn’t start that way.

Invest for example in Gong, Salesloft and Zoom in the early days?  They seemed so different.  But years later, they all start to converge.  Sometimes, this happens much faster.

I remember years ago asking a top investor that had invested in HubSpot if they were interested in investing in my first VC investment, Pipedrive.  They said No, it was too competitive.  I didn’t get it.  HubSpot at the time was 100% marketing automation.  But today, HubSpot CRM is a huge business.

And markets change. Sometimes VCs invest in companies that would have been competitive, but for time. A CRM today is not the same as CRM 5–10 years ago.

So as a rough rule, any VC writing $1m or higher checks tries to avoid funding directly competitive companies.

But everyone defines this differently.

So … just ask.  Just ask.

(Almost the same image from here)

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