Dual Threat CEOs that Build and Invest

Several months ago, Auren Hoffman wrote a blog post titled Dual Threat CEOs where full-time founder/CEOs are also investing in startups with institutional money. At the time, I didn’t think about it too much and put it aside as another interesting theory without knowing too many people to whom it actually applied. However, after reading it, I’ve been socializing the concepts and asking around as I meet successful entrepreneurs. Last week, in Chicago, I asked a number of the entrepreneurs I met there if they did any side investing, angel investing, had a fund, or had any sort of scout program they were involved in. I was really surprised by the results. The majority of the successful entrepreneurs I talked to last week had been investing money on the side, and they had been extremely successful doing so. Now, this could’ve been a moment in time as part of the zero-interest-rate phenomenon, or this could be a trend that has the opportunity to continue indefinitely.

One of the questions that came out of this is, should entrepreneurs run their own company as the founder CEO, who often raises institutional capital, and at the same time be investing in startups on the side, especially using other people’s money? Is this just another side hustle, or is this something that’s going to be really distracting? My answer when somebody asked if I believe entrepreneurs should do this is yes. And the reason I think entrepreneurs should do this if they want to – they shouldn’t do it if they don’t want to – is that when you’re a startup founder/CEO, one of your best uses of time is meeting with other entrepreneurs and other executives, visiting customers, recruiting talented people, and spending time in the industry. Invariably, that leads to finding interesting deals, finding interesting angel-and-beyond investment opportunities, finding interesting ways to help create value in the world.

There are just so few venture-backed founder/CEOs that most startup communities need their talented people performing both roles: performing the role of growing the venture-backed startup and performing the limited role, maybe 2 to 3% of their time, being an asset allocator for high-risk capital. Most up-and-coming startup regions don’t have enough capital; they don’t have enough people deploying capital. And so, if going through the founder/CEO route allows the community to develop that muscle around deploying risk capital and seeing more flowers bloom from the seeds planted, then so be it.

Dual threat CEOs aren’t going to be commonplace, but I do think they’re needed in the startup community. Entrepreneurs that are building businesses are going to find great investment opportunities in the normal course of action, and by being a dual threat CEO, they’re able to deploy capital in a way that is a win-win for both them, the startup community, and the funding providers.