Investor vs. Founder

It's the best time to be a founder...if your end game is $1M ARR

(Excerpt from my RocketFuel Education platform)

The landscape to be an Investor and Founder has drastically changed in the last few months. With vibe coding and other tools to leverage what people can do, we’re seeing trends like the one person one million ARR company, companies hitting $100M ARR in record time, and just a vast amount of new companies in general hitting the internet. With these vibe coding tools anyone can be a founder and start a company.

That does pose some risks to investors, meaning, at any moment the company you invest in could quickly be disrupted by another company. There will also be far more choices to invest in. If there are hundreds of companies with only a few people that are hitting a million dollars in ARR, which one of these are ones you should go for? I think as with most things in this space, it depends.

If you’re part of a large fund and you want to hit a home run, you’re probably only investing in companies that can become billion dollar companies. If you’re an angel investor or even a hobbyist investor, you may want to invest in these fast moving small team startups, but know that at some point there will be a ceiling very quickly. You’ll also have to account for the fact that because the barrier of entry is low, that the moat to fend off competition is low too. That means it’s super risky now to invest in early stage startups. The low ceiling also means that there may be much more infrequent liquidity events. It’ll be hard to get acquired or IPO with technology that is commoditized or with only a few million in ARR.

So what’s the alternative if you have a harder time investing in super early stages? Well you could also become a founder. I know this sounds really outrageous, but now that anyone can build a company fairly quickly, what’s stopping very competent investors from running business ideas themselves? If you build an app that can make $1M a year, are you really going to be disappointed that you couldn’t turn $25k into $1M from investing in a bunch of different early rounds?

Otherwise, it does seem that mid-stage startups have a huge advantage right now. With investors looking away from early-stage due to the rapid volume of new startups hitting traction early, it’s harder to stand out and get to that mid-stage. However, if your startup does hit that mid-stage Series A level, there might be a new interest in investors, particularly early stage ones, who want to get in. That also means that the subset of investors who were looking at Series A might move to Series B, and so on.

So in summary, the playing field has changed, anyone can be a founder and build a business, but the ceiling is capped as there are so many new founders doing the same thing. In a sense, tools like Windsurf have enabled anybody to become a founder, but that also means that there will just be so many new companies and startups that wouldn’t have existed before. Also with this phenomenon it means that investors probably need to go to a later stage to have more market validation, and that early stage investing becomes very tough. This is offset of course, if you just want to make a million dollars. It’s never been easier.