Do The Founder’s Personal Finances Matter?

A reader recently asked if VCs consider an entrepreneur’s personal credit history and finances when making an investment decision. Unless an entrepreneur’s credit history evinces an inability to manage a budget, the personal wealth of the entrepreneur is a more relevant consideration.

VCs want to back entrepreneurs that are highly driven. However, entrepreneurs are motivated by different things. While some are driven by money, others are driven by passion for creation, a desire for prestige or any number of other motivations.

The situation in which I have seen the personal wealth of an entrepreneur considered in the investment process was when the entrepreneur was wealthy and driven by a desire for money. This combination of motivation and wealth raises questions about how hard the entrepreneur will work on the startup — one consideration of many in an investment decision. It’s worth noting that this particular concern can be mitigated by the entrepreneur having sufficient skin in the game (his own money invested in the company).