I was very pleased to have been invited to participate as a panelist at the renowned Red Herring North America Top-100 Conference held in beautiful Monterey, California on May 21-22, 2013.  My panel’s theme was around “knowing your sources.”  At every funding stage entrepreneurs find themselves at a crossroad.  They will need to make the right decision and dance with the right partner.  It’s not just about the money. It’s about the right money. How do you best vet your sources of capital?

I spoke alongside a distinguished panel that included General Partners from Blumberg Capital, Doll Capital Management, Lightspeed Venture partners, and Scale Venture Partners.  Alex Vieux, head of Red Herring, as always did a wonderful job steering the discussion.

I firmly believe that the most compelling entrepreneurs and companies have the luxury of picking from a variety of prospective investors.  Much like dating, the entrepreneur-investor mating game is fraught with the dangers of incomplete information, coupled with the added complexity of a more attenuated timing and process urgency.  As a starting point entrepreneurs need to spend time, time and more time with a prospective investor. Entrepreneurs and CEOs would be well served to look for the right characteristics in a potential new Board member – look for investors who are hungry, motivated, accessible, and from a lifestyle and mindset perspective will “hustle” for the company.

Second, the importance of personality and cultural fit cannot be overstated. As an entrepreneur you will interface often and closely with your new investor(s). It is imperative that there be shared values and an ability to understand each other and communicate well. This does not mean always agreeing – far from it, some level of disagreement is healthy. You don’t want a “yes man” – you want someone who will bring complimentary experiences, perspectives, and skills, who will challenge you, but someone who is rational, empathetic and preferably someone who does not exhibit a sociopathic disposition.  The individual investor is typically much more important than the firm.  Investor personalities and dispositions can vary wildly within even a small firm.  Ultimately this is a people business and you want the right person in your corner, with the name of the firm holding secondary importance.

Third, do you homework. Most investors will be connected to people you know – find out about them by doing your back-channel checks.  Do your homework.  Minimize reliance upon stereotypes or blanket assumptions. You are an entrepreneur because you possess the ability to “think different.” Put that ability to use in screening and qualifying your prospective investor.  Do you want someone with deep operating experience?  Ask yourself why.  Most entrepreneurs I have spent time have tell me that while this “sounded like a good idea,” what they were really looking for is “operational empathy.”  Some of the most prominent and successful investors do not possess much operating experience per se, which in fact could be a liability for you if the investor decides to impose his way of “how I did things in my day” to a market environment that is totally different from the company they ran years ago.

While there is no one-size fits all silver bullet here, the over-arching advice I would give entrepreneurs is to spend time with your investor to make sure there is chemistry.  Then figure out if the investor is hungry and motivated enough to truly want to add value to your enterprise. All the knowledge and experiences in the world are useless to you if you can’t get a phone call or email returned in a timely manner because the other person is too busy or you are too low on their priority list.  Look for an investor who will be available and accessible to you and who from a career standpoint is highly motivated to help your company succeed, possessing the requisite mix of curiosity, optimism, intelligence, judgment, resourcefulness and creativity to help you in a meaningful and substantive way.