What are early signals that founders should walk away from a potential investor?
This is a tougher question than it sounds. Many VCs are at their most charming and accommodating when you are raising money — they are in sales too, after all.
So the larger question is, where does VC-founder disalignment come from, and can you spot it early?
VC-founder disalignment really comes from two factors:
- very different “outcome” goals. The VC only wants $5b+ exits, vs. you are OK selling at $20m, as an extreme example. Here, the VC will push you in ways you may not want to be pushed. Every VC wants big winners, but some are more binary about it.
- very different risk / spend profiles. Some VCs will see a $1m loss as huge. Others will see a $10m loss as a bummer yes, but a rounding error, e.g., if they just made $2b off Spotify or $3b off Dropbox. This will vary not just by fund by importantly by individual partner.
I’d tease out if you are aligned on both those points. If you aren’t, maybe find another investor if you can. If you are, things probably will be OK as long as the other factors you use to evaluate people say thumbs-up.