Talking to investors whose portfolio company is a competitor

We're trying to decide whether or not to talk to an investor who has invested in a lot of companies, and one of them has some overlap with our product but has a different business model (b2b vs b2c).

Is this a good idea? Do investors invest in potential competing companies?

What happens if a portfolio company pivots and becomes a direct competitor to another portfolio company?

I have actually been in a similar situation once - I was having a chat at a startup event and was talking to a guy who was a member of an angel network. He mentioned to me that he had started working with a similar startup before and would not tell me anything further. At this point I obviously also ended the conversation.

What is important is that you protect your 'sacred cows' when you make your first approach and when you know that the investor is invested in a partial competitor of yours. After all, your great idea might be the fix those guys have been looking for! You can still pitch convincingly, but do not open the books fully just yet. Signing an NDA etc. will probably not help you much either since it will not give enough protection in such a case.

It is also ok to bring up this subject with them. Be upfront about it and let them know about your concerns prior to actually discussing your business. Their reaction will tell you a lot about what to expect. If it is not what you expected then it is ok to end the conversation right there and then.

If one of their portfolio companies is already an active competitor of yours then I would expect them to turn it down right away - it would be professional to do so. If you are worried about future pivots creating a competitive scenario, speak about it with them at the beginning and get their view. They will have the same thoughts as you and the only way you can find out whether or not it makes sense is to have a conversation and be honest about it.

In general, getting an investor on board who already has a prominent standing in your sector has its obvious benefits, and my recommendation is therefore to have a chat - being too stealthy about your startup will in the long run be less helpful than risking some publicity, even with investors.

Hope that was helpful.

My understanding is reputable investment firms do not invest in competitors to companies they've already invested in.

If they already have a business in that space - Pass. Business models change (ever heard of pivoting?) and you don't want to be disclosing something that could influence that event.