Author: rosie

Translation: Luffy, Foresight News

Venture capital firms (VCs) operate on a simple premise: find companies with product-market fit, provide funding to scale, and then reap returns as the company grows.

The problem is that most VCs are actually unable to assess product-market fit. They are not the target customers, they do not understand the use cases, and they rarely have the time to delve into user behavior and retention metrics.

As a result, they adopt an alternative criterion: Do I like this 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 surveyed VCs consider the founder or founding team to be the most important factor in their investment decisions. Not market size, not product appeal, and not competitive advantage, but the founder.

The so-called "product-market fit" often merely reflects a "founder-investor fit" attached to some revenue numbers.

The Problem of Selective Bias

The reality of most venture capital meetings is:

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

From a risk management perspective, this makes sense. Investors know they will work closely with the founder to navigate multiple critical moments, market changes, and strategic decisions. A great founder can find a way even with an average product, while a mediocre founder can mess up even with an excellent product.

But this creates a systemic bias: favoring founders who are good at communicating with investors rather than those who are good at communicating with customers.

The result is that companies can raise funds but struggle to retain users. The product may seem reasonable in presentations but fails in actual use. The so-called "product-market fit" only exists in the boardroom.

What Causes the "Pivot Epidemic"

If you've ever wondered why so many well-funded startups keep pivoting, then "founder-investor fit" perfectly explains this phenomenon.

Data shows that nearly 67% of startups stagnate at some point during the venture capital process, with less than half able to raise a new round of funding. Interestingly, those that do manage to secure follow-on funding often adjust their direction multiple times during the fundraising process.

When a company raises significant funds based on the qualities of the founder rather than true product appeal, the pressure shifts to maintaining investor confidence rather than serving customers.

Pivots allow founders to continue telling a growth story without having to admit that the original product is unworkable. Investors are betting on the founder rather than a specific product, so they often support pivots that sound strategically meaningful.

This leads companies to focus on fundraising rather than customer satisfaction. They excel at identifying new markets, crafting compelling narratives, and maintaining investor enthusiasm. However, they struggle to create something that people genuinely want to use continuously.

Metric Performance

Most early-stage companies do not have real product-market fit metrics. Instead, they have metrics that indicate product-market fit to investors.

They substitute monthly active users for daily active users, total revenue for user cohort retention rates, partnership announcements for organic user growth, and friendly customer testimonials for spontaneous user behavior.

These may not necessarily be false metrics, but they serve the narrative for investors rather than business sustainability.

True product-market fit is reflected in user behavior: people use your product without prompts, feel frustrated when the product fails, actively recommend your product, and are willing to pay more over time.

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

When founders focus on optimizing the second type of metrics (because it helps them secure funding), a disconnect arises; while the first type of metrics determines whether the business is truly viable.

Why Investors Fail to See the Difference

Most VCs pattern-match based on successful companies they have seen in the past rather than assessing whether current market conditions align with those historical patterns.

They look for founders who remind them of previous winners, metrics similar to those of past winners, and stories that sound like those of past winners.

This approach works when the market is stable and customer behavior is predictable. But when technology, user expectations, or competitive dynamics change, this approach fails.

Investors who funded SaaS companies in 2010 knew what successful SaaS metrics looked like at that time. But they may not know what a sustainable SaaS business will look like in 2025, where customer acquisition costs will be ten times higher and switching costs will decrease.

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

No matter how much funding you secure, you cannot achieve product-market fit through money alone.

The Cascading Effect of Social Validation

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

This creates a cascade of validation, where the quality of investors replaces the quality of the product. "We have the backing of a top-tier venture capital firm" becomes the primary signal of product-market fit, regardless of actual user engagement.

Customers, employees, and partners begin to believe in the product, not because they have used it and liked it, but because smart investors have endorsed it.

This social validation can temporarily replace true product-market fit, creating companies that appear successful on the surface but are actually struggling with fundamental product issues.

Why This Matters for Founders

Understanding that fundraising is primarily about founder-investor fit rather than product-market fit will change the way you build your company.

If you are only trying to attract investors, you will build something that can secure funding but may not be sustainable. If you are trying to attract customers, you may build something sustainable but struggle to secure the funding needed for scaling.

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 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 advantages, and how market understanding drives strategic positioning.

Systemic Consequences

Replacing product-market fit with founder-investor fit leads to predictable market inefficiencies:

Excellent products that lack funding channels receive less capital than their potential warrants, allowing well-funded competitors to capture the market through capital rather than product quality.

Outstanding fundraisers with mediocre products receive more funding relative to their fundamentals, leading to unsustainable valuations and inevitable disappointments. Research shows that 50% of venture-backed startups fail within five years, and only 1% can become unicorns.

True product-market fit becomes harder to identify as signals are drowned out by fundraising performances and the cascading effects of social validation.

Innovation clusters around investor preferences rather than customer needs, resulting in market saturation and untapped opportunities.

What This Means for the Ecosystem

Recognizing this pattern does not mean that the qualities of founders are unimportant, nor does it mean that all venture capital decisions are arbitrary. Great founders do indeed create better companies over time.

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

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

They have a deep understanding of their customers, allowing them to create products that are not influenced by investor opinions. Then, they translate that understanding into a framework that investors can evaluate and support.

The worst outcome is when founders mistakenly interpret investor enthusiasm as customer validation, or when investors misinterpret their trust in founders as evidence of market opportunity.

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

Next time you hear that a company has amazing product-market fit, ask whether they mean customers can't live without the product or whether investors are raving about the founder. This distinction determines whether you are looking at a sustainable business or a clever fundraising performance.

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