The Good, the Bad, and the Ugly Investor
If you understand what type of investor you are pitching to, you are more likely to find the right partner to trust your precious startup with.
Having had the opportunity to pitch to more investors than I could keep track of, there is one observation that has stuck with me from the very first pitch meeting. Based on the questions you are asked, you can classify an investor in one of three types: The Good, The Bad and The Ugly.
The Ugly Investor
The ugly investor mainly cares about the financing of the deal.
If at every opportunity she gets, she asks you about your current valuation, your previous valuation, and what will the valuation be when you raise your next round, you are pitching to an ugly investor.
If one of the first three questions is, “who else is investing?”, you are pitching to an ugly investor.
If her version of “helping” your startup is telling you about which other investors she would like to “run this by”, you are pitching to an ugly investor.
If your spend any time in your first meeting discussing the deal structure, debating the merits of convertible notes over priced rounds, you are pitching to an ugly investor.
The Bad Investor
The Bad investor is a bit more curious, but not curious enough.
If she only cares about how big the market is, and if your startup has a billion dollar TAM, you are pitching to a bad investor.
Marketing sizing is a important and necessary part of deal evaluation, but a bad investor only focuses on the market size. It’s easy and lazy.
The Good Investor
Pitching to a Good investor goes very differently.
If she asks your about your customers, is curious about behaviors and habits of your customers, you are pitching to a good investor.
If she wants know who your real competitors are and why, you are pitching to a good investor.
The good investor wants to know what jobs your potential customers are likely to hire your product or service to do.
That’s it — as simple as that. Next time you are in a pitch meeting, pay attention to the questions the investor is asking you. Knowing if you are pitching a good, a bad, or an ugly investor will go a long way in helping you find the right investor for your precious startup.
Bonus: The 2x2 of investor evaluation
Once you have successfully raised some capital, you can use another simple tool to evaluate the investors in your cap table. Folks who are most engaged and most helpful are great to work with — the good investors. Folks who are not engaged and not very helpful are still ok, it’s still money. The ugly ones are folks who are engaged and not helpful — that’s when trouble happens.
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