The Innovators
Max Chafkin | Inc. magazine

How to Choose an Investor

 

Sachin Agarwal, CEO of Posterous, ponders the softer side of the investment equation and proposes the Rule of Beer:

Hang out with the partner over beer. The more beer you have, the better. If you are going to work with this person for years to come, you have to be comfortable around them.

The essay, which is worth reading in its entirety, details how Posterous recruited and picked venture capital investors. (In March, the company, which offers a very simple blogging platform and was backed by Y Combinator, raised $4.4 million.)

It's got some great tips on pitching--beware of negotiating with associates, who don't have the ultimate decision making responsibility at venture capital firms--but it's most lucid on the nature of the investor-entrepreneur relationship. Agarwal describes the uneasy feeling at a recent board meeting: "The guys around this table have a lot of power over our company. They are on the board. They have voting rights. They can fire me."

Hat tip: Hacker News.

Senior contributing writer Max Chafkin has profiled companies such as Yelp, Zappos, Twitter, Threadless, and Tesla for the magazine. He lives in Brooklyn, New York. @chafkin