Investor Nirvana

I’m pretty new to the investment business. It’s been just over 3 months since we closed our fund. In that time I have done three investments (Fabric, DokDok, Rewardli) and looked at many more opportunities.  Yet, in this short amount of time, I have gained more clarity around what makes a good investment than I had in over 11 years as a CFO for startups.

A few years ago I wrote a post called Love at First Sight, sharing my observation that the deals I had successfully done with VCs all had one common characteristic: the investors loved them from the 1st meeting. We still had lots of hoops and diligence to get through, but there was clear interest and engagement from the beginning.  Whenever that engagement was missing, the discussions would come to an end, quickly or slowly.

As I reflect on these past few months, I break down this subjective word “love” into a concise recipe of investor nirvana:

In no particular order:

Market: Large opportunity in a market that I know, am excited about and can add value in (contacts, knowledge, hiring, etc).

People: Founder(s) who know the space, who move quickly and who I would love to take a long flight with.

Trust: Either I have known the founders for a while or get multiple touch points with them so I can see how they operate (and see them do what they said they would do…) before investing.

Thesis: I know the market and know what the company needs to do to succeed. The value proposition and differentiation are clear.  I know who would make ideal follow on investment partners. The company has multiple natural acquirers.

I am sure I could break each of these elements into a detailed checklist, but this is the essence. With all these elements in place, I’ll be scrambling to make a deal happen. With one or more missing, things are more likely to drag on and likely not result in a deal.

As you pitch investors for funding think about these criteria, both from the investor’s and your point of view. It’s a two way street. If you have a great company, you can get funded. So, it has to be about more than $. The fit in terms of engagement, value add and personal chemistry should be there for both sides. After all, startups are tough. Without those strengths going on, the investor / company relationship can be taxed over time.

So, hold out for investor nirvana. I know I am…

  • http://www.thecodefactory.ca Ian Graham

    The theme song for investor Nirvana that includes the elements of; Market, People, Trust and Fit might be "Smells like start-up spirit". I like the sound of that tune.

  • Dave Litwiller

    Great post. Because of how dynamic circumstances will be in early stage investments, the importance of chemistry between investor and entrepreneur takes even greater prominence relative to the idea or growth of the target market compared with later stage investing.

    Chemistry has a large intuitive element. There is also a body of research based on social and evolutionary psychology that can further break down the elements of interpersonal chemistry which can sometimes be helpful as a structured check and balance to augment more emotional or visceral senses or compatibility.
    http://www.scribd.com/doc/48175284/Cash-Connectio

    Dave

    • http://startupcfo.ca Mark MacLeod

      Thanks for sharing that link Dave. Looks interesting!