I love the title of this post by Matt Mireles: “How I Judge Investors” on his The Metamorphosis blog. The title alone makes a very important point: Investment is like a marriage. Both sides win, or neither side wins.

It is really painful is to see a potentially good business go down the drain because the investors and the founders weren’t compatible. And it happens a lot.

I’ve been on both sides of this table. Yes, you should be judging your investors. It works best as a long-term partnership, and that works best if it makes both sides better.

Early on, Mireles makes this very important point:

“Do I want this guy on my board?” This, above all else, is the question.

It stays good as he says he looks for intelligence in an investor, emphasizing that with a great quote from Steve Young, Hall of Fame quarterback, attorney and private investor. Mirales quotes Young as saying he aims to be “the dumbest guy in the room.”

Matt adds:

The beauty of hanging around and dealing with really smart people is that they have a rub-off effect. Really smart people challenge you and force you to think bigger, harder and, at the risk of sounding completely vague, better. They pick apart your bad ideas quicker…

That’s great stuff. So far.

However, I don’t buy his entire list. Matt wants an investor to be a bit like your favorite character in the movies, secure and self confident, humble, self-aware, and, yes, even happy. Gulp. But I’m really glad he’s making such a list, and writing about it.

I do like the idea that investors should “teach him stuff.” Damn straight.

Some of my favorite investors are those who, regardless of whether they’ve said yes or no, teach me something about my industry, product, market, team, etc. Even if they say no, they’re the ones I’m gonna go back to down the road and try to lure them into the yes column.

I don’t like his idea that he doesn’t want investors who want him to lie. Specifically, his example.

This typically manifests itself in the form of long-term financial projections. “What will your sales be five years from now?”

I don’t buy that. It doesn’t take a great deal of sophistication to understand the difference between lies and projections. I’m sorry, but I want to see some projections and I want them to have the granularity and logic it takes to make them believable. Don’t promise that the seas are going to part; but do come up with some numbers. “How should I know?” doesn’t cut it. The investors are fully aware of uncertainty.

Thanks, by the way, to Nelly Yusupova, @digitalwoman on Twitter, who called this post to my attention. That’s an example of why I like Twitter: I would never have seen the post otherwise. And good luck to Matt Mireles and his venture SpeakerText. In fairness to him, since I’ve been critical in parts of this post, I want to finish quoting his paragraph on his background, with a really strong argument for following his lead in judging people:

In my previous life, I worked for many years as a paramedic in Harlem and the South Bronx. Before that, I fought forest fires on a hotshot crew for the U.S. Forest Service. I have seen what stress does to men (and women). I have seen people die. Lots of ’em. Babies, too. I have seen how people react, flip out and lose their shit entirely. And I’ve seen people fail, then recover with grace despite mortal danger. And in all this, I learned a little bit about judging the character of men. Quickly. For this, I make no apologies.

Hard to argue with that.

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Tim BerryTim Berry
Tim Berry

Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.