Many entrepreneurs make the mistake of investor promiscuity–they’ll get in bed with anyone with an open wallet. You need to be as picky with potential investors as you are with potential employees, if not more. Remember, you can’t fire your investors.
Conversely, investors should figure out how they add value to their deals and sell that value. If an entrepreneur doesn’t think you add value but still wants your money, he is either dumb or desperate. Either way, you shouldn’t invest.
Here’s a great example from my own portfolio. I started working with David Weekly and Ramit Sethi long before I ever invested. I offered product feedback and helped them with free advice. We even worked on a few experimental projects together. By the time PBworks* raised its first round, the company knew I would add value, and made sure there was space for me in the round, along with much more renowned investors like Ron Conway.
So it you’re an entrepreneur, don’t be frustrated if the investor you meet with doesn’t write you a check on the spot (though certainly, such investors are much appreciated). Instead, appreciate the opportunity to conduct multiple rounds of job interviews to determine if *you* want that investor on your team. See how he or she works, and figure out if you’ll enjoy working with them.
The good news is, if you enjoy working with the investor, chances are, that investor will decide the feeling is mutual, and invest in you as well.
* And sometimes, the metaphor becomes more–in the case of PBworks, I eventually ended up accepting an offer to become an employee!