Texts with Founders: Reference Checking Investors
Learn about other founder's experiences before committing to a fund
This is the 23rd weekly post from Texts with Founders — tested tactics for early-stage startups.
News and Updates
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“The more that you hire people that are too cash-obsessed, the less likely that your equity—that everyone's equity—will be actually worth a lot.”
“One of our values is playing for the front of the jersey.”
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Reference Checking Investors
When you're raising for your startup, it's not just about getting potential investors excited about what you're doing. You've got to be thoughtful about who you end up taking money from—especially your lead investor. Once a fund offers you a term sheet, it’s essential to find out what their portco founders have to say about working with them before you accept.
Even though you might feel rushed to say yes to a term sheet, take time to have these conversations. Sometimes, investors will try to get you to verbally commit to the term sheet when they call you to offer it. Make it clear that you're excited about the prospect of working with them and then ask for intros to two founders the investor has worked with—one who had a smooth ride and another who faced tough times (or even had their business shut down). Feedback from founders who had a range of outcomes will give you a better idea of what it's like to work with the investor during good times and challenging ones, too.
Sometimes, investors will proactively offer to introduce you to founders. That's great, but also talking to a founder they didn't introduce you to is wise. That way, you might hear different stories—not necessarily bad ones, just different. Use existing angels, other founders, or community members from networks like ODF to get connected with other founders who've worked with your prospective lead investor. When asking for introductions, emphasize the situation's sensitivity — you don't want it to leak to others that you have a term sheet from a specific fund.
I recently helped a founder with a term sheet connect with a founder who had previously taken money from the fund:
A couple of things to note when reference-checking funds with other founders:
Founders are generally happy to meet other founders who are weighing a potential investment and give them feedback. They likely had other founders do this for them, so they consider doing it for others as paying it forward.
Facilitating this introduction was low-lift for me but incredibly helpful to the founder — I was the only person they had in their corner who could connect them to a founder the fund had previously backed.
Had the founder I texted not had a positive experience with the fund, they would have been very open about it. Founders are willing to share these sorts of things with other founders off the record.
The founder spoke with three portfolio CEOs — two introduced by the fund and another I connected. All of the conversations went well enough to validate their initial excitement about working with the fund. They signed the term sheet and have since gotten back to building.
Remember, making the time for these conversations can save you significant headaches later. Be sure to talk with founders who have first-hand experience working with a fund before committing to them as your lead investor.
That’s all for this week — thanks for reading.
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Check Size Doesn’t Matter - Forget minimum amounts and optimize for quality people
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Conditional Commitments - Why they aren't commitments and what to do about them.
Handling Inbound From Investors - Avoid distractions and keep potential investors warm.
How “Good Guy” Phrases Torpedo a Pitch - And how to win over customers and investors
Avoid Hiring Too Early - Navigate external pressure focused on vanity metrics
Customers understand before investors do - And some investors will never understand
The Benefits and Downsides of Responsiveness - Where it can help and where it can backfire.
Avoiding Gossip - Nimbly navigate an awkward scenario.
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