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Ten Characteristics of Great Investors

Ten Characteristics of Great Investors

Fred had a great post today called Ten Characteristics of Great Companies.  This link includes
the comments, which numbered over 70 when I last looked.  Great discussion overall, especially
for Fred’s having come up with the list on a 15-minute subway ride.  Fred used to write a series
of posts about VC Chiches, and I would periodically write a Counter-Chiche post from the
entrepreneur’s perspective.  This post inspired me to do the same.

So I’ve taken 15 minutes here, pretended I’m on the subway, and here is my list of Ten
Characteristics of Great Investors, in no particular order:

1. Great investors know how to give strategic advice without being in the operating
weeds of a company
2. Great investors get to know whole management teams, not just CEOs — in fact,
great investors become part of the extended management team of their portfolio
companies
3. Great investors invite you to do diligence on them by giving you a list of every CEO
they’ve ever worked with and asking you to pick the ones you want to talk to
4. Great investors ask great questions
5. Great investors don’t publicly take credit for the success of their investments, even if
they were major drivers of that success
6. Great investors show up for meetings on time and don’t spend the meeting using
their smartphone
7. Great investors treat their portfolio companies’ money as if it were their own money
when spending it on things like lawyers or travel
8. Great investors look for connections to make between their portfolio companies or
relevant people but have a strong relevance filter and don’t send junk
 9. Great investors never have a ready-made list of the ways they add value to
companies — and they specifically never talk about the help they give in recruiting
executives or making sales/bus dev introductions
10. Great investors recognize when they have a conflict around a portfolio company and
are clear to represent their separate points of view separately

I’m not sure I’ll be invited to present this anywhere, but there it is for discussion.

Filed under: Business, Entrepreneurship, Leadership, Venture Capitalists

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+1 Vote up Vote down

Mark Solon 56p · 65 weeks ago

Matt,

This is a terrific post and a must read for all of my peers. We talk all the time about how we can
become better a better investor and partner for our companies. I'll be sure to share this with my
partners. - Mark Solon, Highway 12 Ventures
no
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0 Vote up Vote down

druce · 65 weeks ago

These things make a popular and value added VC investor from the perspective of the CEO.

But a VC could be the best in the business at every single one and never make a dime.

A great VC has to do these things while sourcing great investments, knowing when to hold 'em,
fold'em, or double down, and getting great value for their own investors.

(and of course lots of great investors are not even active investors)
no
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0 Vote up Vote down

Rob Go · 65 weeks ago

Great list. But I don't understand #9. I think investors do add value in this way - and isn't it helpful
to provide specific examples? Maybe I'm missing your point.

But otherwise, very nice post.

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0 Vote up Vote down

Greg Boutin · 65 weeks ago

A very good list. I especially like #3. I have yet to meet investors doing that, but it would be great
if it happened.

I'd only add that investors who don't fit the above profile can also make great investors by being
silent investors!

Of course, everyone likes an investor who contributes productively, but there are times when
recognizing there are too many cooks in the kitchen and piggybacking on more qualified
investors is the best quality an investor can have.
no
Reply
4 replies · active 65 weeks ago
0 Vote up Vote down

gMan · 65 weeks ago

This sounds more like it should be titled "Ten Characteristics of Investors Who Behave Like I
Wish They Would" - I see little or nothing here that would actually make an investor "Great" in a
financial sense. Seriously, showing up to meetings on time makes you great? I doubt even half
the top investors on the planet match this criteria.
no
Reply
2 replies · active 65 weeks ago
0 Vote up Vote down

William Carleton · 65 weeks ago

Fun exercise. A thread that pulls most of these ten together might be, "a great investor is
personally invested." Or acts as if she or he is.
no
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0 Vote up Vote down

Krishna · 65 weeks ago

A nice first list. Commitment, besides an eye on ROI should be the hallmark of a truly great
investor. The one that draws on her experience to pick up on weak signals (of distress and
opportunity) and alerts the entrepreneurs to get their act together and get around the bend.
no
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0 Vote up Vote down

Ryan Graves · 65 weeks ago

Matt-
At the very early stage of interacting with investors, I am starting to see why certain traits here
become important.
I'm currently hunting for a firsrt round angel investment and I'm wondering if your list would differ
from VC's to Angels?
Great list, keep it up!
no
Reply
1 reply · active 65 weeks ago
0 Vote up Vote down

Keith · 65 weeks ago

Problem is that when you research 'value add' from a VC you struggle to find any impact.
Meanwhile how many of a VCs portfolio get this help - especially when they really need it but the
VC has written them off as living dead.
#3 is crucial - do your due diligence on the VC and don't forget to go beyond current portfolio -
there's a huge survivor bias otherwise.
no
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1 reply · active less than 1 minute ago
0 Vote up Vote down

Matt Howard · 65 weeks ago

Nicely done!

I'd like to suggest an additional item for the list. Great investors have an intellectual, in addition to
capital, interest in the business.
no
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1 reply · active less than 1 minute ago
0 Vote up Vote down

Dan · 65 weeks ago

As others have noted, this is a list of "Characteristics of a great investor - for the company"
(rather than 'for their LPs'). That said, There's a crucial one I see missing. A great investor has
high tolerance for failure. That may mean standing by a founder who's doing a reasonable
amount of learning on the job, or standing by a company through a recap and a reset. While
portfolio returns may benefit from aggressive culling, it's usually in the company's interest to have
an investor who believes in second chances.
no
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0 Vote up Vote down

Shurtleff · 65 weeks ago

Matt on #1, an investor with relevant experience can be of great help in the weeds, but they have
to wear a very different hat, the key is to be able to switch hats back and forth (communicate)
and only go into the weeds with explicit permission. i find this analogy works on both private and
non-profit boards i work on.
no
Reply
1 reply · active 65 weeks ago
0 Vote up Vote down

Derick Harris · 65 weeks ago

Some of the VC people I deal with are pricks. They have far too much power, which reduces to
money, or access to it. This list is a good start. It should encourage entrepreneurs to boycott VCs
with bad reputations. The basics or benchmarks for me are: (1) Acknowledge your email as a
common courtesy; (2) Read what people send to you as a part of that courtesy, or post on your
web site that you don't accept unsolicited proposals; (3) Don't gate keep with return email
addresses for executive assistants. Be courteous enough to use your own email address; (4) if
you can't do those things, where do you get off presuming to extract surplus value from the
intellectual property of others, just because you either have money, or access to it.
no
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1 reply · active 65 weeks ago
0 Vote up Vote down

James · 65 weeks ago

Anyone want to offer up a "10 best investors" list based on this?

no
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1 reply · active less than 1 minute ago
0 Vote up Vote down

greg · 65 weeks ago

Great post! It's my team's first go-round with a particular VC, and frankly, we have been getting
increasingly concerned the further along the investment process has gone. (Luckily, there is no
term sheet yet.)____Four areas in particular are concerning: First, the investor, who is not
technically proficient, is speaking with my CTO directly more than he is speaking with me, and
without my knowledge (Am I being paranoid?). Second, he has said he will get me a list of CEOs
of companies he has funded, but has hemmed and hawed on that. Third, he has somehow
decided that despite amazing partnerships already in place, and our product (and ability to start
having revenue) a day from launch, and our extremely conservative pro forma estimates, wants
to give us a valuation less than half of what we (very conservatively) believe it should be. And my
favorite he wants to rewrite our employment contracts to eliminate options, severance and
minimum terms. Boy, this has given us all a warm fuzzy feeling about him. Luckily, there isn't a
term sheet yet, and other investors are coming alog in their own diigence.
no
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1 reply · active less than 1 minute ago
0 Vote up Vote down

Nancy · 65 weeks ago

I would add "a great investor is honest and willing to deal with the real issues". In my business, i
have seen too many investors who want to ignore a problem, hoping it goes away, then just
replace the CEO when the problem gets to big, hoping the new person will fix it
no
Reply
1 reply · active 65 weeks ago
0 Vote up Vote down

Geoff · 65 weeks ago

Nice list; From the other side..I would just add, great investors can empathize with management
teams, i.e. the constant battle with strategy, market forces, etc because great investors most
likely would have been great operators at some point. Being able to see through the eyes of
those you invest in can provide unique insight.
no
Reply

0 Vote up Vote down

Donna White · 64 weeks ago

Fascinating! I've passed this along to some of my Private Equity friends. While this could
certainly be applicable to PE, it would be great to see a list that specifically addresses these
investors.
no
Reply

0 Vote up Vote down

Kyle · 64 weeks ago

Couple questions Matt, what's a VC Chiches, or Counter-Chiche ?

Also, what do you mean "and they specifically never talk about the help they give in recruiting
executives or making sales/bus dev introductions", how can they do these things without talking
about them?
no
Reply
1 reply · active less than 1 minute ago
+1 Vote up Vote down

theweddingvine 1p · 25 weeks ago

Hi, great post. Also confused by number 9. I think that value-add is immensely important for start-
ups, for example a VC who has experience of running similar businesses and can help shape the
direction to avoid pitfalls.
no
Reply
1 reply · active 25 weeks ago
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