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The Full Ratchet

Investor Stories 440. The Questions That Expose True Alignment, How Founders Test Investors, and Why the Hard Ones Matter Most (Wang, Banks, Cohen)

5 min episode · 2 min read
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Episode

5 min

Read time

2 min

Topics

Health & Wellness, Relationships, Investing

AI-Generated Summary

Key Takeaways

  • Stress-testing investor support: Founders should directly ask potential investors how they would react to a missed quarter, what advice they'd give during failure, and request references from entrepreneurs whose companies failed.
  • LP longevity concerns: Fund managers now question LP commitment by asking if they'll remain in their seats long enough to support future funds, given high turnover rates among limited partners at institutions.
  • Alignment on success metrics: Managers ask LPs upfront how they will judge performance for the next fund, allowing both sides to align expectations on what constitutes success before committing capital together.

What It Covers

Three investors share the most revealing questions they've received from founders and LPs that expose true alignment during good times and bad.

Key Questions Answered

  • Stress-testing investor support: Founders should directly ask potential investors how they would react to a missed quarter, what advice they'd give during failure, and request references from entrepreneurs whose companies failed.
  • LP longevity concerns: Fund managers now question LP commitment by asking if they'll remain in their seats long enough to support future funds, given high turnover rates among limited partners at institutions.
  • Alignment on success metrics: Managers ask LPs upfront how they will judge performance for the next fund, allowing both sides to align expectations on what constitutes success before committing capital together.

Notable Moment

An LP probed deeply into a fund manager's marriage stability, reasoning that major relationship disruptions significantly impact professional performance and time allocation, though it initially felt intrusive.

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Episode Transcript

This episode of TFR is brought to you by Ramp, the spend management platform we use here at TFR. They're offering listeners a $150 just to take a demo. We've never had an offer quite like this. Claim your $150 before this offer is gone at our partner link, ramp.com/partner/tfr. And this episode of TFR is brought to you by the American Arbitration Association, where smart startups and investors turn to for fast, efficient, and cost effective dispute resolution. Visit adr.org/tfr to learn more. Welcome to the podcast about venture capital, where investors and founders alike can learn how VCs make decisions and reach conviction. Your host is Nick Moran, and this is the full ratchet. Welcome back to TFR. On today's special segment, we ask guests to share the best question they've ever been asked by an allocator. Here's the segment called best LP question. On today's special segment, we have Kasper Wang of Sapphire. What's the best question a founder or investor has asked you? The best question a founder has asked me is if I missed a quarter, the founder missed quarter, what would your reaction be? Right? What would be your real advice, like, be? And and and I think that's a very important question. Right? Again, it's probably not one question. I'm just generalizing, but I do think it's a very important thing for every founder. Try to really get a sense. Right? Ask in very clear words, clear terms. Ask multiple times. Right? Like, you know, what's the catch here? Like, what what exactly do you do when a company doesn't work? I think that's a very important thing. And again, like, folks are aligned when things are going up into the right, and it's so easy to cheerleading, but you do want people. And I do think, like, for me as investor, when I think about a founder, right, like, I want people who are challenging me. Right? I want founders, you know, who are challenging me in a way where I send a customer intro over to you, Tom and Sarah. First thing he said is like, hey. Is this the right person, right, that I should be talking to? Like, how much context have you given to that person? Right? So the next time I know what exactly how I should pitch a solution to a potential buyer for for my founder. Right? So I do want people who can challenge me, and I do think founders, in some ways, you know, again, when they're fundraising, everything is going so well that it's just easy. It's just human nature to not think about what happens when, you know, when stuff hits the fan. Right? So I do think, like, you know, Warren's probably not 80% of the conversation, but 30% of the conversation, I think you should think about, like, what happens when things don't go well. Right? Perfect. On today's special segment, we have Lara Banks of Mechanic Capital Management. …

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