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Green Flags to Look for in Early-Stage Investors (and Red Flags to Avoid)
Not all investors are created equal, here are 5 green flags and 5 red flags to look out for in early-stage investors.
Arjay Ruggles
April 05, 2024
A Quick Hello
Welcome to The Squeeze, a bi-weekly newsletter for early-stage founders!
After many weeks of interviews, conversations, and connections, I’m excited to welcome you to The Squeeze, a bi-weekly newsletter that provides resources, guidance, tips, and news to early-stage founders.
This joint effort from myself and Amir Khan, Co-Founder and General Partner of the MARL 5G Accelerator, aims to the provide the kinds of resources and knowledge we wish we had during our respective founder journeys.
Each issue will dive into a major topic around fundraising and investor relations for Pre-Series A startup founders. We’ll also highlight an early-stage investor who is actively writing checks, allowing our readers to request a warm introduction with a single click.
So without further ado, let’s jump into it!
🥤 Arjay & Amir
Fundraising Tip of the Week
Green flags you should look for in early-stage investors (and red flags to avoid like the plague)
Not all investors are created equal. Some will go to the ends of the Earth to support their portfolio companies, while others take a hand off approach and only engage when asked. And a select few (unfortunately) end up being a drain on a founder’s time or energy, and in a few extreme cases (see: MySpace) can cause a company to completely fall apart.
Here are some green flags to look for when evaluating potential investors for your early stage startup, and some red flags to keep an eye out for to protect the valuable entity you’re creating.
🍀 Investor Green Flags
🧠 Industry Expertise: Investors with a background (either as an investor or operator) can help you navigate complexities that are unique to your market.
🌐 Network: An investor with a strong network can open doors to potential customers, strategic partners, talented employees, and even future investors.
🖊️ Operational Experience: Firsthand experience allows them to provide valuable guidance, help you avoid common pitfalls, and accelerate your company's growth trajectory.
🔭 Long-Term Vision: Investors who share your long-term vision for the company will be on your side through the ups and downs you’ll face over the years.
🎁 Value-Add Support: Prioritize investors that provide some kind of value beyond a check, weather that be assistance with sourcing employees, creating brand design assets, or acting as fractional product managers.
🚩 Investor Red Flags
😡 Overbearing or Controlling Behavior: This behavior can undermine your autonomy and hinder your ability to make important decisions for the company.
😶🌫️ Lack of Transparency: Strong investor-founder relationships are built on trust and investors who lack transparency will often be more trouble than they’re worth.
🙅♂️ Conflict of Interest: Conflicting interests means that investor has placed their own agenda over the best interests of your company.
🥸 Short-Term Focus: Investors who prioritize short-term gains over long-term value creation may pressure you to pursue unsustainable growth strategies or premature exits.
🍰 Excessive Dilution or Control: Giving up too much equity can limit your ability to hire key executive or, in the worst case, destroy any opportunity for attract future investment.
Investors You Should Know
Featured Investor of the Week
Each week we highlight an early-stage investor that is actively writing checks to Pre-Series A companies. If you’d like to request a warm introduction, click the “Request Intro” button and complete the form.
Note: We use a double opt-in system to ensure warm introductions; you will only receive a reply if an investor has accepted your request.
 | David LambertGeneral Partner, RSCM (Right Side Capital Management)Stage: PreSeedMin Check Size: $50K |
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