Vetting a Potential Investor on Your Way to the Perfect Investor!

Nicole says,”Raising money is the negotiation of a lifetime, are you ready?”

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Raising money is one of those entrepreneurial jobs that is very difficult – and so we have invested a lot of our effort and experience to demystify it with our “Designing the Perfect Investor™” strategy. And part of Designing the Perfect Investor™ is, in fact, vetting potential investors.  Particularly if an investor or VC is introduced to you and wasn’t already on your Perfect Investor™ perfect investor list

One key thing to check with any potential investor you communicate with is whether or not they have invested in a competitor of yours.  Of course you must therefore really know your competitive landscape so that you know all the competitors out there!  Whether you are developing your Perfect Investor list, or get an introduction, first check the portfolio to make sure they haven’t already invested in a competitor.

If you meet or are introduced to an investor, be cautious if they seem immediately interested after you’ve given them your pitch.  Of course you have the coolest deal ever, but take it from sad experience, when a VC really understands the sector and immediately “gets” your pitch….it is entirely possible they’ve already done a bunch of due diligence and already invested… in your competitor.

So, when a VC seems really interested, as exciting as that is, simply ask, “Have you invested in this sector…?”  Is it possible an investor would lie in order to pump you for competitive information – it is a slight possibility.  But it does hurt their reputation if they out and out lie to your face.  But if you don’t ask, investors have NO COMPUNCTION about digging as deep as you will let them about your plan so they can spill it to your competitors. On the other hand, it may be a sector that they are familiar with and that they WANT to invest in, they are just looking for the right entrepreneur and company.  In that case they are definitely a  Perfect Investor™!

As part of Designing the Perfect Investor™, you should also vet the VC with other entrepreneurs who have raised capital from the firm and particularly from that partner.  Most of the time this information will be on their website and other entrepreneurs are usually very willing to offer their feedback about their experience with an investor, particularly if it’s good.  If a current portfolio CEO won’t talk with you about the firm, or has bad things to say, this should be a HUGE red flag!  If one out of 10 such CEOs is less than enthusiastic, you should weigh this accordingly, but if more than one CEO has issues or is reluctant to discuss the investor, that tells you a lot.


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