The Investors You Want

Next week 114 startups will be presenting at the YCombinator Demo Days. That’s a huge number; I’ve been looking into some of them and it’s overwhelming. To me, incubator demo days bring to mind the Hunger Games: a number of extremely driven founders compete for investor attention and money over the course of a few hours. Interestingly this is more like a real game: nobody will die (hopefully), and there are multiple chances to participate in it. If I were playing, I’d focus on maximizing my chances of getting the ideal investors for my company. So who are those ideal investors?

Let’s use the following definition: an investor is someone who gives you money in exchange for ownership in your company. By that definition, the minimum value from an investor is the amount of money he/she contributes. Obviously it’s possible to get much more out of an investor. These are my criteria for choosing:

  • All else being equal, pick someone who was a funded entrepreneur once. You can’t be a teacher without having been a student. You can’t become a pilot if you haven’t been a passenger first. If I had to pick between two investors, I’d prefer the one who was in my shoes once. There are a number of reasons beyond empathy. If nothing else, this person must have faced some of the problems you are having or will have.
  • Have at least one investor who’s well connected in your target market or industry. I’d be very skeptical of a medical startup who had zero doctors as investors, for example. So many rich doctors in the US and you couldn’t convince one to invest? Do you at the very least have an investor who’s a respectable healthcare industry insider? Besides the credibility, having someone motivated to introduce you to their peers can be extremely valuable.
  • For some startups, an investor with a megaphone is essential. Of course, there are different types of megaphones. A large following on Twitter is an obvious one, but there are others. In certain niches some people have loud voices that don’t translate into thousands of social media followers. On the other hand, having a celebrity with a million followers as an investor may not give you the attention you need. The more of an introverted nerd you are, the more you need others with a vested interest in helping you promote your product or service.
  • An investor with no time for you might as well be just money. Suppose you have the ideal investor with all the previous properties, but he/she never replies to your emails. This is more common than you’d think. Some successful people have too many investments and too little time. One of the traits of (what I consider) good investors is that they know when they can be helpful. When I reached out to my IndexTank investors with specific asks, they always stepped up. How do you know if this will be the case? Ask their portfolio companies. They perform their due diligence on you, and of course you must do the same. When I was raising money for IndexTank and things were heating up, we got substantial interest from desirable investors that I’d never met in person. If I was inclined to let someone into the round, I made up a rule: I’d have to meet in person and chat for a while before taking their money. That meant many hours of driving in the Bay Area, but it was worth it.

The corollary of this is that a desirable startup is the one that has choices. If you can’t convince the investors your company needs, that’s a problem you need to solve first. Picking undesirable investors just because they are the only ones who want you is the same as marrying the first person who’ll say yes. I won’t tell you how to make your company attractive, at the very least you’d have to buy me coffee 🙂

Also keep in mind that the odds are never in your favor. It wouldn’t be fun if they were.

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