The Founder's Investor Cheatsheet: Beyond the Money

Today at a Glance:

• A simple cheatsheet of different investor types
• The type of money you take determines the company you build
• Your personal definition of success before raising capital
• Choose investors whose timeline and return expectations align with your vision

I'll never forget this conversation from 2016…

Just after closing a seed round, one of our venture investors met with me and said:

"Chris, I'd rather you spend all the cash we have quickly and go out of business trying to show rapid growth, than just showing moderate or steady growth. We'll only be able to raise a fast follow Series A if we can show a core metric that's growing rapidly. It's better to accelerate and run into a brick wall, than only having steady growth and not getting a Series A done."

That day, I learned a lesson: raising money isn't just raising money — you're taking on a partner who will want the company built in a way that aligns with their investment model.

For our investor, here's what I didn't know:

• They were trying to raise their next fund and needed to show deal markups to help get that done. Thus the pressure for a quick Series A.
• Their investment model assumed 7 out of 10 investments would go to zero. So if we went out of business spending all cash to chase rapid growth, that was already factored into their model.

Different investors have radically different expectations, timelines, and definitions of success. The money might spend the same, but the strings attached can fundamentally change how you build and operate.

So before you chase capital, understand who you're inviting into your business.

Here's a simple cheatsheet of investor types, and what you need to understand about each before raising money.

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Angel Investors

Summary: Individual investors using their personal wealth. Often entrepreneurs themselves who provide capital, advice, and connections.

Investment Stage: Pre-seed to seed (often the first check, $25K-$250K range)

What They Look For:

• Strong founder-market fit
• Personal connection or passion for your space
• Compelling story/vision
• Early signs of traction or unique insight

Who Makes the Decision:

• Individual decision-maker
• Gut instinct often plays a significant role
• Often quick yes/no (days to weeks)

Time Horizon:

• 5-10+ years
• Generally patient capital
• No fixed timeline for returns
• Often comfortable with smaller exits

Economics:

• Looking for 5-10x returns. But doubles and triples are also wins for them
• Often satisfied with $50M-$100M exits
• May accept lower returns for ventures they're passionate about
• More flexible on exit strategies (acquisitions, cash flow businesses)

Get an understanding of what they're like to work with. Most angels are very passive investors. They like the idea and the team, and place a bet. However, there are others who want to be in the business… they view the check as their buy-in to being another founder. This is less common, but it's important to align on expectations.

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Venture Capital (VC)

Summary: Professional money managers who invest other people's money (limited partners) into high-growth startups through structured funds.

Investment Stage: Seed to Series C+ ($500K-$50M+)

What They Look For:

• Exponential growth potential
• Large addressable markets ($1B+ TAM)
• Clear path to scale rapidly
• Network effects or other defensibility
• Team capable of building a category-defining company

Who Makes the Decision:

• Investment committee
• Partners often need consensus (though some funds allow partners to pick their own deals)
• Structured diligence process
• Reference checks and deep market analysis

Time Horizon:

• Fund lifecycle of 5-10 years
• Pressure for exits in 5-7 years
• Need portfolio companies to progress to next rounds quickly and capture markups
• Prefers IPOs or major acquisitions

Economics:

• Need companies to reach $500M-$1B+ valuations
• Model assumes most companies fail, with 1-2 home runs per fund
• Need that one 50-60x winner to make the fund economics work

It's important to note that while venture capital sounds sexy, it's often low on the totem pole for capital allocation. Venture funds have to fight hard to raise money. Pension funds, University endowments etc allocate capital to venture firms mostly when capital is cheap (lower interest rates).

You saw an exaggerated form of this in 2021 and 2022 with incredibly low interest rates. Capital became very cheap -> money flooded towards venture firms -> venture firms rapid fired huge investments into fast growing companies all chasing 100X returns -> then quickly raised their next fund -> deployed more investments -> marked up those investments (often in internal rounds)…. Until the music stopped. Capital became expensive, resulting in less being allocated to venture funds, which made it harder for venture firms to raise their next fund, which caused more disciplined investing and a focus on companies who sustain themselves.

In summary, venture's approach to investing is highly affected by cost and availability of capital. When it's cheap, they fund quickly and push huge spending so they can deploy as much money as possible and chase big returns. When capital is expensive, all that gets pulled back FAST. Your venture partner could be telling you one minute to spend as much as possible, and 6 months later be pushing to cut all spending and focus on profitability.

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Private Equity (PE)

Summary: Investment firms that acquire established companies with proven business models, often using significant debt (leverage).

Investment Stage: Growth to mature ($10M-$1B+ revenue companies)

What They Look For:

• Proven business model with consistent revenues
• Strong cash flow characteristics
• Stable, predictable growth (15-30%)
• Clear path to operational improvements
• Industries with consolidation opportunities
• Strong management teams (or ability to replace them)

Who Makes the Decision:

• Investment committee with specialized industry expertise
• Highly analytical, financial model-driven approach
• Exhaustive diligence (8-16 weeks)
• Focus on downside protection

Time Horizon:

• 5-10 year hold periods
• Defined exit strategy from day one
• Regular operational reviews and milestones
• Clear timeline to maximize EBITDA for exit

Economics:

• Target 3-5x return on equity
• Often use significant leverage (debt)
• Need consistent cash flow to service debt
• Focus on EBITDA improvement and multiple expansion
• Often cut costs aggressively after acquisition

Private equity is much more about financial structuring. Venture firms often have standard term sheets, docs, pricing structures etc. Not private equity… they are incredibly creative in deal structure and the terms of every agreement.

This also translates into due diligence. Venture firms perform due diligence, but nothing close to private equity. The due diligence matches the investment style. Venture is placing a bunch of bets, modeling that a few will go big. PE is placing 1 MAYBE 2 bets per year, and failure is not an option in the model.

For what its worth, I'm fortunate to know a good group of both Venture and Private Equity Investors. I do not know a single private equity investor who isn't doing incredibly well.

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Family Offices

Summary: Investment organizations serving ultra-wealthy families managing their own capital across generations.

Investment Stage: Varies widely - some do early-stage like angels, others operate more like PE or VCs

What They Look For:

• Alignment with family's values, interests, or expertise
• Opportunities to leverage family's industry connections
• Capital preservation + growth
• Often sector-specific (tied to how family created wealth)
• Sometimes mission-driven investments (impact focus)

Who Makes the Decision:

• Family members and/or professional investment team
• Decision process varies widely (can be quick or lengthy)
• Often less formal than institutional investors
• Relationship and trust-based

Time Horizon:

• Often the most patient capital (10+ years)
• Multi-generational perspective
• Comfortable with slower growth trajectories
• Less pressure for specific exit timing

Economics:

• Return expectations vary widely
• Often more flexible than institutional capital
• Some prioritize cash flow over pure equity appreciation
• May be willing to accept 2-3x returns for lower risk
• Sometimes more focused on wealth preservation than maximization

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Alignment Is Everything

The investor you choose doesn't just finance your company—they shape its destiny. A business built for VC money looks fundamentally different from one built for PE or family office capital.

Ask yourself:

• Does my vision require hypergrowth or can it thrive with steady expansion?
• Am I building to flip or building to last?
• Do I need a massive exit or would a smaller outcome be a win?
• Can my business model support the returns my investors need?

Remember that misalignment between your goals and your investors' expectations is the source of most founder-investor conflict. Choose partners whose success metrics match your vision.

Until then 🙌🏼