Capital is a commodity. This is not a criticism of capital. It is a description of how it has come to trade. There is more of it in the market than there are businesses worth backing, and the terms across firms - for a given profile of business - are closer than any partner will admit in a first meeting.
Which means, if you are the owner of a business that could plausibly raise from any of a dozen firms, the question is not who has the best money. Every dollar looks identical the moment it hits the account. The question is what arrives with the money.
The four things worth paying for.
Not every partner brings each of these. Almost none bring all four. The exercise, for the owner, is to figure out which of them the business actually needs - and to insist on it as a condition of the round.
1. Operating judgement.
The ability to look at a hiring decision, an acquisition, a product-line question, a customer negotiation, and say we have seen this before, here is what tends to happen. This is the hardest capability to fake in a first meeting, and the easiest to test in a reference call. Ask the reference to describe a specific decision the partner shaped.
2. A network the business can actually use.
Not the LinkedIn network. Not the logo wall. The specific set of operators, customers and potential acquirers who will pick up the partner's call. A useful network is a small network of people who owe the partner a favour and will spend it on the business.
3. Governance without theatre.
Good governance looks like a partner who reads the board pack before the meeting, arrives with three questions, and leaves with two commitments. Bad governance looks like a partner who arrives having read the summary, delivers a monologue, and departs to catch the next flight. Founders can usually tell which they are getting by meeting three.
4. The discipline to hold a line.
A useful partner is willing to have the hard conversation - about a hire that is not working, a strategy that is not converting, an acquisition that is a distraction. Not every partner is. The tell is whether the partner has ever, in front of a portfolio-company reference, said no to the founder on something that mattered.
"When capital is a commodity, the differentiator is what the partner does on the Tuesday no one is watching."
"When capital is a commodity, the differentiator is what the partner does on the Tuesday no one is watching."
The things not worth paying for.
In parallel, there are things partners will sell to founders that are worth less than they appear. It is useful to name them.
Playbooks.
The playbook is a marketing artifact. Every founder-led business is different enough that the generic playbook has to be re-authored on arrival - which is what a good partner does anyway, without calling it a playbook. If the pitch leans heavily on the playbook, be gently sceptical.
The fund's brand.
The brand of a well-known firm is genuinely useful in a few specific situations - hiring at the executive level, entering a new geography, signalling to a strategic acquirer. It is not useful most Tuesdays. Do not overweight it.
Reporting infrastructure.
Every firm has one. Most are competent. Almost none are a source of differentiated value. Owners who choose a partner because the monthly reporting template looked good are choosing on the wrong dimension.
How to test for the real thing.
Two tests, both cheap, both surprisingly diagnostic.
The first: ask the partner to name the last decision they got wrong in a portfolio company, and what they learned. Partners who cannot name one are not being honest. Partners who name one immediately, with specificity, are the ones worth talking to further.
The second: independently find a founder the firm has worked with - not on the reference list - and ask them the following. Not are they helpful, but when things were hard, who called first, and what did they do. The answer to that question is the truest description of the partnership you will find.
"Every partner will tell you they are hands-on. Ask the last founder who worked with them what that meant on the worst Tuesday of the year."
"Every partner will tell you they are hands-on. Ask the last founder who worked with them what that meant on the worst Tuesday of the year."
A closing thought.
Value beyond capital is not a marketing category. It is what the partnership is actually made of. Owners who choose partners on that dimension - not on the dollar, not on the deck, not on the brand - end up in the partnerships that compound. Owners who choose on price alone tend to be right about the price and wrong about everything else.
Capital is a commodity. Partnership is not. Choose accordingly.
David Erickson is Managing Partner of IMRSV Growth Partners. david@imrsv-gp.com.