Three Tests of Trust.

Taking a particular investor’s money is a one-way door. Once an investor is on your cap table, they are part of your company’s life, through every round and every crisis, until the end. That is why I say to choose them like co-founders.

Investors are easy to love when times are good. The real test comes when times are bad. The worst capital I ever took failed that test. It came from an angel investor, and the test came during COVID. He was not a large investor. But he consumed an enormous share of our time and attention when we had none to spare. The best investors I have had leaned in. They gave us confidence when confidence was scarce, gave us room to grow and did not get picky or greedy.

So how do you choose a co-founder? Not everyone handles stress the same way. Founders can be buddies when everything is great. When things go badly wrong, you do not want a partner who takes the highway and leaves. The number one thing I look for is trust, and I test it three ways.

Truthful

Is this person honest? That one is usually easy to determine.

Reliable

Will he do the job? Does he have the fortitude? Do I want him in the foxhole with me? When Ciaran Hynes says, “Don’t worry, I got it,” I can go to bed knowing that he has it.

Capable

Can this person do the job, and will they admit it if not? A gap you know about can be covered. A gap someone hides cannot.

Character and competence

Covey’s split maps cleanly onto the three tests. Truthful and reliable speak to character. Capable speaks to competence. A partner strong in one and weak in the other will fail you in a storm, just in different ways.

The structure matters too. As an investor, I often see co-founders split the company 50-50, because it is easy at the beginning. Is it really 50-50? Research by Thomas Hellmann and Noam Wasserman, covering 1,476 founders in 511 ventures, found that equal splits were associated with lower first-round valuations, most of all when teams settled the split in less than a day. Ask the question at the start, while it is still a conversation.

Run the tests

1. Write how you would knowFor each test, truthful, reliable and capable, write the evidence that would convince you.
2. Work one hard problem togetherBefore you commit, solve something real under pressure. Stress shows character faster than success does.
3. Question the splitWrite what each of you really brings. Then ask whether your split is really 50-50.
4. Hold investors to the same barDescribe the investor you want beside you in your worst quarter. Check your list against that paragraph.