Yesterday my investor decided to fund a direct competitor to my company. Solving the same problem, for the same target market, similar looking solution, slightly different approach. I sense a bit of competitive spirit in the near future. I've already ramped up the schmoozing to get the investors to like us more at a personal level.
I guess it's no big deal. Looking forward to leaving Europe for the next round anyway. With a few exceptions, the higher level VC's here are some of the worst people I've ever met. They literally hate technology.
This is kind of a grey area. It's not unheard of for early-stage investors to fund two or more competitors (real or potential). If an investor believes the problem is real and the TAM is lucrative, then he or she will have an incentive to take as many shots on goal as necessary. Furthermore, as YC states in its FAQ, "...it's unavoidable you'll end up with some overlap" between companies when you fund so many of them, and when the startups' fundamental business models change so often. In these circumstances, YC states its operating procedure as: "...we don't talk to one about what the other's doing."[1]
Early-stage startups are a loosely regulated market. Things get trickier when you're dealing with public companies, or even with very large private companies. The markets are more established, and the potential for anticompetitive behavior is quite real. Some PE groups have started to come under scrutiny for holding corporate-governance-significant equity stakes in two or more firms operating in the same market.[2][3] And in general, a corporate officer or director of a public company will be deemed to have a conflict of interest if he or she holds a significant position in a competing firm.
Q: Will you fund multiple startups working on the same idea?
A Yes. If you fund as many companies as we do it's unavoidable you'll end up with some overlap. Even if you tried not to accept competing companies, you'd still get overlap because startups' ideas morph so much. The way we deal with it is that when two startups are working on related stuff, we don't talk to one about what the other's doing.
In practice it has not turned out to be a problem, because most big markets have room for several slightly different solutions, and it's unlikely that two startups would do precisely the same thing."
Both look like cool services and I wish either one was available here in Chicago.