One of the most delicate things about being an investor that no one seems to talk about: Reference Calls.
Any great investor knows that much of their job involves back-channeling favors and introductions for both founders and other investors. It’s an effective way to help both parties and build relationships with everyone.
But, there’s one situation that puts all those relationships at risk.
When a new investor is considering investing in a startup, they’ll often conduct reference calls with that company’s current investors. When I receive these calls, I do my best to maintain a very delicate balance.
I will never lie on a reference call just to secure more cash for a founder. But, I never want to be the reason that one of my founders doesn’t receive an investment.
If I portray the company too favorably and it eventually fails, the investor might claim that I misrepresented the reality. If I’m too critical in my feedback, the founder might blame me for scaring away a potential investor.
The only way to really master this balance is to practice… A lot. And, it’s ok to make mistakes! They’re unavoidable.
Navigating these situations is an art. The most important thing is to be honest.
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