Fundraising
Do You Know How to Diligence Potential Investors?
Researching an investor tells you if they're a fit on paper. Diligencing an investor tells you whether they're actually worth having on your cap table.
This is different from research
Researching an investor means checking their stage focus, portfolio, and fund status before you reach out. Diligencing them means evaluating them as a long-term partner after they've expressed interest. Don't skip the second step.
Investors will diligence you — do the same to them
Investors will go deep on your company before writing a cheque. You should apply the same rigour to them. An investor on your cap table is a relationship you'll have for years; a bad one can actively hurt the company.
How to diligence an investor
Talk to founders in their portfolio. This is the most important step. Ask for introductions to founders — both successes and companies that struggled. The investor may offer references; also find and reach out to founders independently.
Ask them:
- What was your experience working with this investor?
- Were they helpful, or were they a net negative?
- Did they show up when things got hard?
- Would you take money from them again?
What you're looking for
Investors fall into a few rough categories:
- Hands-off — they write the cheque and leave you alone. Fine for some founders; frustrating for others.
- Operationally helpful — they can open doors, make introductions, help with hiring, or provide functional expertise (legal, enterprise sales, product, etc.).
- Actively harmful — some investors create drama on the cap table, push for decisions that serve their fund rather than your company, or consume significant founder time for no benefit.
The goal is not just to avoid the harmful ones — it's to find the ones who will genuinely accelerate you.