November 30, 2021

Why founders should care about where VCs get their money

Should founders try to find out who’s investing in their investors? Here at Eniac, we believe they should — in fact, Hadley recently tweeted that he’s been “very surprised” that founders don’t bring this up more often. And all the responses made us realize it’s worth discussing the topic in more depth.

One thing that became clear is that there’s still a lot of confusion about how the VC model actually works. Contrary to what many people seem to believe, VCs aren’t just wealthy individuals who invest their own money. They do generally put money into their funds, but the vast, vast majority comes from outside investors called limited partners (LPs) — in other words, VCs have to go through the pain of fundraising themselves.