Investor fit
How to choose the right investor, not the first one
A framework for diligencing investors: thesis fit, behaviour in a bad quarter, reserve strategy and the reference calls most founders never make.
7 min read
Capital is close to a commodity at seed. What is not a commodity is how a particular investor behaves in the quarter where you miss plan by forty per cent.
Thesis fit before chemistry
Chemistry in a first meeting predicts almost nothing. Thesis fit predicts a great deal. An investor who has already underwritten three companies with your shape of business will move faster, price more confidently and panic less later.
Ask directly: what in your portfolio looks most like us, and what did you learn from it? A vague answer means you are an experiment for them.
The reference calls to actually make
Speak to a founder whose company did not work out. That is the only reference that tells you anything. Ask how the investor behaved in the down round, how quickly they answered, and whether they were honest about their own limits.
Ask about reserves too. An investor with no capacity to follow on is a fine first cheque and a problem at Series A if they hold information rights and a board seat.
Signals that the match is real
They challenge the plan in the first meeting rather than flattering it. They introduce you to someone useful before there is a deal. They are specific about what they will and will not help with.
Investors who oversell their support are usually overcommitted. The good ones name two things they are genuinely good at and leave the rest to the operators around you.
Take these away
- —Diligence the investor as hard as they diligence you.
- —The most useful reference is the founder whose company failed.
- —Specific, narrow offers of help are worth more than broad promises.
Theory is cheap. Preparation is not.
Two minutes on the readiness check will tell you which of these you actually need to act on first.