Startup-Investor Fit

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The definitive index to identify investor-fit for your startup. An 18-point checklist, with three sections to help you find SIF.

You’ve all heard of Product-Market fit (PMF), but I bet you haven’t heard of Startup-Investor Fit. Because, it didn’t really exist… until now. Startup-Investor Fit (SIF) is the degree to which there is a fit between your startup and an investor - who you are seeking funding from.

Use this checklist for when you are researching funds to invest in your startups. There are an abundance of investors out there - so the goal isn't to reach out to all of them, but to find the one that suits you the most.

This checklist can also be used when you’re taking a meeting - get on a call and go down the list. See if you are a fit for them, as much as you consider if they have what you need as well.

Overview

  1. CRITICAL are the must-haves. Without these things in line, don’t even bother reaching out or trying to convince them to invest. It just isn’t going to happen. If this was dating, imagine this being things you look for most in a potential partner: are they your preferred gender, are they in the age bracket you typically like, are you attracted to them, do you like similar things? And most importantly, do you have chemistry?

  2. ADDITIONAL are the good-to-haves. You wish they had these, but you’re OK if they don’t. Who have they dated before? Can they help you with your project? Do they have a nice family you get along with? Will they come with you on the scary rollercoaster ride?

  3. OPTIONAL are the nice-to-haves. This is where this dating metaphor gets awkward because I can't think of a good parallel for follow-on strategy, and fund performance. But hey, just think about this as bonus points. Do they have your dream car? Are they insanely good at table tennis? Did they go to college with LeBron James? If you have options, then you get to be particular and get to these nice-to-haves.


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The Checklist

Critical

  1. Lead vs. Follow
    First and foremost, find out if they lead rounds or follow only. Without a lead, you may struggle to ever get a term sheet, because everyone else is waiting for a lead investor. Let this be the first thing you find out, so you know whether they’re going to be one of the first yes’, or last yes’. It's OK if they only follow, it just means you’ll have to come back to them later.

  2. Sector / thesis
    Do they invest in your vertical/industry? If they’re a deeptech investor, they’re likely not going to invest in your SaaS startup. You can usually find this out from their website, or Crunchbase before even getting on a call. If they’re vertical agnostic, then proceed to the next step.

  3. Check size / startup stage
    Is there alignment in terms of the check sizes they write. If it’s a $100M fund, they’re unlikely to write $50K checks - it just won’t move the needle enough for them. Thats just how funds work. If they’re a $2M micro-fund, they’re not going to write a $1M check. Figure this out early.

  4. Geographic preference
    Are you located in the location they invest? Yes, I know the world is remote, but it doesn’t stop some VCs and the LPs from which they get money from having an inclination (sometimes mandate) for investing in certain locations. Confirm this and move on.

  5. Conviction
    Do they believe in you and trust your vision? Are they going to let you run your company, or are they looking to have more input than you are comfortable with? So, look for their belief in you and your team, and your ability to make this the next big thing.

  6. Chemistry / connection
    Do you get along and enjoy the conversation? Is time moving faster than you expected, or slower? The complexity of any relationship takes time to explore, but the more diligence done before a deal is made, the more confident (and excited) both parties will be. Make sure you have shared values as well. For example, do you care about diversity, and if so do they display it? The main sentiment here is that investors and founders should be treated as long-term allies and there should be mutual respect.

Additional

  1. Fund reputation
    What is the reputation for this fund in the market? Has the fund been talked about as founder friendly? When you read articles or browse portco’s websites, are people raving about how awesome they are? The involvement of a strong brand name on the cap table will create FOMO, send positive signals and help you close more investors. If they’re brand new, that’s OK too - then maybe look for their personal brand by checking Twitter, LinkedIn and so on. Just figure out what people have to say about them.

  2. Dry powder
    Do they have money to invest right now, or are they currently raising another fund for which you will have to wait for to be completed before you’ll see any investment? If they really want in, they could set up an SPV - but the point is, this is nice to know so you know where their priorities are and can plan accordingly. It can be a tough conversation, but transparency and matching expectations is important early on.

  3. Previous investments
    Have they invested in a startup at the same stage/industry before? That's usually a great sign for fit. Have they invested in a similar startup before? This can go both ways - will that make you competitive or complementary? If you already know they’ve invested in a competitor, stay away! Also, do your own due-diligence by talking with a founder they've invested in previously. Did they say positive, neutral or negative things? You may even learn a little about the fund if you ask them to make intros to their portco for you.

  4. Value-add
    Is there a promised value-add beyond money that you need or will get? A good question to ask is: What are notable impacts you've made on your portfolio companies at a similar stage as us to help them to get to their next biggest milestone? If they’re not promising value-add, and you don’t need it, then skip this.

    If it's important to you, ask the partner at the fund you’re speaking with if they previously founded a company in this industry? Or do they have domain expertise by being an early employee at a relevant startup, or made an impact at a big organization. All this will demonstrate what kind of value-add you could get.

    Note: A great question to ask a founder they’ve invested in before: “In what ways has the fund been helpful to you?” Then, reflect if that aligns with what the fund is promising you.

  5. Community offering
    By receiving funding, is there a community they make you part of? Usually VCs have some kind of way to connect the portfolio companies together. Either on Slack, or quarterly meetups. Find out what they are - as from my experience, the most value comes not from the mentors or investors, but other founders in the network.

  6. Co-investors
    Do they co-invest with any other known, local or repeating firms? If so, who do they usually co-invest with? Or share deal flow with? This could come in very handy later.

  7. Board seat preference
    Do they want/like to take Board Seats if they invest. Remember, control of your company is not about how much equity you own but the power which is granted by board seats. So think really hard here whether you want or don’t want them on your board. If you do, great, find out early if they’re committed to even more than just investing.

Optional

  1. Follow-on strategy
    What is their typical follow-on strategy? Will you need more funding later and are they going to stick with you for future rounds too? Do they have a portion of the fund carved out to support follow-on investments, or is that a different fund? Nice to know this now.

  2. Who are the LPs
    Do you care where the fund got its money from? Remember, funds are a pool of OPM (other people's money). Some founders really want to know, and others want funding no matter where it came from.

  3. Fund vintage
    How long has the fund been around? Along with the past, does this fund connect with future funds or initiatives to support a long-term relationship? If you’re one of the last investments from this fund, will you get as much support as if you were one of the first few checks? Could be interesting.

  4. GP commit
    Have they personally invested their own money into the fund too? Basically, do they have skin in the game to ensure you succeed?

  5. Fund performance
    How well is the fund performing overall? Have they been making good picks and seeing returns, or are they all over the place. Again, this is why you’re in the optional section right now. Perhaps you don’t care - and just want the money and want to put it to work. Some founders may find it challenging to buy-in with an emerging fund since there isn’t a proven track record. If you have the luxury, be as selective as you want.

That's it. That’s your checklist. Now go to sabakarim.com/investors for a list of over 5,000 investors and use this guide to narrow it down properly.

Thank you to the following founders for sharing their perspectives and helping me put this together. To ensure I got mixed views, the founders here have raised $0 to $4M. The average raise was $1.25M, and the median was $500K. Go check them out and see what they’re building.


Abb Kapoor, Curu Credit
Alex Friedman, Talk Howdy
Alison Anderson, SuccessionMatching
Adam Metz, Cidersoft
Ben McDougal, Author of YDNTB
Danish Dhamani, Orai
Kendall Warson, Cohart
Lindsay Padilla, HelloAudio
Mariam Nusrat, GRID
Matty Johnson, Taskable
Matt deCourcelle, Paperstreet
Yasin Abbak, The Convoy