Nia Bowers
Photo Courtesy of Unsplash.com
Picture two term sheets on a founder’s desk. One carries a higher valuation and a better-known name. The other comes from a smaller fund whose partner has returned every call within the hour. Many founders would take the first, knowing far less about that fund than it knows about them.
Venture capital builds that imbalance into the process. The investor studies the data room, the cap table, and the regulatory position. When an offer arrives, the fund knows what it is buying. The founder takes on a shareholder for seven to ten years on the strength of a few meetings and a brand name.
Michelle Luan treats that imbalance as a choice, and her remedy has a name: reverse diligence. The founder studies the investor before the investor finishes studying the founder, and the question moves from whether a fund can invest to how it will behave once it owns part of the company.
Reading the Portfolio
Luan starts with the portfolio, the one record a fund cannot curate. Every firm calls itself founder-friendly, long-term, and supportive. The portfolio shows whether those claims hold.
She points founders toward the companies that stalled. Did the fund bridge them, help sell them, or go quiet? In Luan’s view, a fund’s conduct in its three worst deals predicts a founder’s experience better than its three best, because a company that performs well barely needs its investors. She borrows the method from M&A, where an acquirer judges a counterparty by what it did when a deal went wrong.
Calling the Founders Who Got the No
Funds check references on founders, and Luan argues founders should return the favour. She suggests three questions.
Who decided follow-ons, and how? The answer shows whether support follows performance or proximity to a particular partner.
Who showed up when it got hard? Luan calls board attendance after a flat round the cheapest honest signal in venture, since attending costs a partner nothing while the company is winning.
Would you take their money again? She tells founders to watch the pause before the answer.
The people with the answers sit one conversation away, and almost no founder makes the calls.
The Partner Behind the Firm
A term sheet carries a firm’s name, yet the behaviour a founder lives with belongs to one person. The partner who champions a deal usually takes the board seat, and the partner who shines in meetings may carry little weight internally. Founders can research the deals a partner has led, the boards they sit on, and how many of their companies raised again with the fund’s support. When two term sheets sit close together, Luan recommends weighing the partner as carefully as the firm.
Behaviour at the Exit
Luan has argued previously that investors price the ending before the company, and for technology businesses that ending is an acquisition. Working from London, she has executed capital raises and M&A transactions of roughly $500 million to $5 billion for technology-enabled businesses across the Americas and Europe. She treats an investor’s exit record as the evidence most worth collecting. Did its companies sell early and often, and who initiated? Has the fund ever blocked a sale a founder wanted, or forced one a founder didn’t?
Leverage and the First Harsh Term
Knowing an investor well does not make a founder its equal. Leverage depends on things that move: runway, metrics against the round’s benchmarks, competing interest, and the market that quarter. Capital concentrates in whatever the market favours, so an AI infrastructure business and a consumer platform meet very different tables.
Leverage matters most when cash is lowest. A business with four months of runway takes the money on the table. Luan warns that terms travel. A stacked preference, board seat, or veto accepted under pressure becomes the next investor’s starting point, because no one accepts weaker protections than the shareholder ahead of them. One weak round sets the floor for every round after it. The real cost, in her view, is the compounding.
Starting at the End
Luan’s closing point concerns the one lever a founder fully controls: timing. A raise runs through materials, first meetings, partner meetings, committee, term sheet, and legal close, plus weeks for every issue diligence surfaces. Founders plan for the fast version. Luan considers twice that length the safe assumption.
Her advice is to run the calendar backwards. Fix the month the cash has to arrive, subtract a realistic process, and start the raise then, while the founder can still say no. The ability to walk away, she argues, is the only negotiating power a founder reliably controls, and founders build it months in advance in the operating plan.
The founders who negotiate well, Luan observes, tend to be the ones who arrived with time to spare.
About Michelle Luan
Michelle Luan is a London-based investment professional and Senior Executive, specialising in risk evaluation across technology-enabled businesses. She works with founders to refine strategy, prepare for fundraising, and de-risk their path to capital. She has executed large capital raises and M&A investment transactions (c. $500m-$5bn) for technology-enabled businesses across the Americas and Europe.
