The Siftwell Analytics Approach to Investor Due Diligence: Why Founders Should Interrogate Their VCs

 

The Siftwell Analytics Approach to Investor Due Diligence: Why Founders Should Interrogate Their VCs

The term sheet arrives. The valuation is strong. The partner seems nice. You sign, celebrate, and six months later realize you’re stuck with a board member who doesn’t understand your market, pushes for strategies that don’t fit your business, and can’t open the doors you actually need opened.

In a recent episode of Category Visionaries, Trey Sutten, CEO and Co-Founder of Siftwell Analytics, a healthcare technology company that’s raised over 5 million in funding, shared a lesson many founders learn too late: investor due diligence runs both ways.

The Lesson from Watching Others

Trey’s approach to investor diligence didn’t come from personal disaster—it came from watching other founders live through it. “How important it is to do your due diligence as a Founder,” he emphasized, explaining the origin of his perspective.

“I have often heard about founders getting funding. That was the exciting piece. But then there was a mismatch between what the company actually needed and who ended up on their board.”

This observation captures a pattern that plays out repeatedly in venture-backed companies. The fundraising process focuses intensely on convincing investors to write checks. Founders prepare pitch decks, rehearse presentations, and stress over valuations. But the inverse process—founders rigorously evaluating whether specific investors are right for their company—often gets minimal attention.

The asymmetry creates problems that compound over years. A board seat typically lasts until exit. The investor who seemed great during a few pitch meetings becomes a voice in every strategic decision, every subsequent fundraise, every crisis. If there’s a fundamental mismatch in understanding, expectations, or approach, you’re locked into that misalignment for the duration.

Siftwell’s Investor Diligence Framework

Trey’s experience with Siftwell’s fundraising process—working with Alicorp, Ark, and Tao—gave him a framework for founder-led diligence. For the next funding round, he’s applying that framework even more rigorously.

“That’s something that we’re really double clicking on and making sure that there’s the experience match, there’s the industry expertise match, that there’s a cultural match, all the rest of it that we eventually are going to be working with, understand what we’re building, how we’re building it and why we’re building it,” Trey explained.

This framework has three distinct layers, each addressing different dimensions of investor fit.

Layer 1: Experience Match

Experience match goes beyond generic venture capital experience. It’s about whether the investor has seen companies navigate the specific challenges your business will face.

For Siftwell, operating in healthcare AI with enterprise sales cycles, this means investors who understand regulated markets, complex procurement processes, and the long timelines inherent in health system sales. It means investors who won’t panic when deals take twelve months instead of three, or when pilot programs need to demonstrate outcomes before expanding.

An investor whose portfolio consists primarily of consumer apps or bottom-up SaaS companies might struggle to advise on healthcare enterprise dynamics. Their mental models for growth, sales efficiency, and product development may not translate. The advice they give—however well-intentioned—could push the company toward strategies that don’t work in healthcare.

Experience match creates realistic expectations and relevant pattern recognition. When challenges arise, the investor has context for whether they’re normal growing pains or genuine red flags.

Layer 2: Industry Expertise Match

Industry expertise goes deeper than experience. It’s about whether the investor genuinely understands the market’s unique dynamics, key players, regulatory environment, and purchasing behavior.

In healthcare, this expertise proves valuable in multiple ways. Industry-savvy investors can make warm introductions to health system executives, payer organizations, or channel partners. They can help interpret market signals—understanding whether regulatory changes create opportunities or obstacles. They can contribute to product strategy discussions based on real market knowledge rather than general venture logic.

Trey’s emphasis on this dimension reflects healthcare’s complexity. The industry has unique reimbursement models, compliance requirements, data privacy regulations, and buying committees. An investor who understands these nuances can add strategic value. One who doesn’t may inadvertently push the company toward approaches that seem logical but don’t account for healthcare’s specific friction points.

Layer 3: Cultural Match

Cultural match might seem soft compared to experience and expertise, but it determines whether the founder-investor relationship actually works day-to-day.

Some investors operate hands-on, wanting weekly updates and involvement in tactical decisions. Others prefer quarterly check-ins and strategic guidance. Some push aggressively for growth at all costs. Others prioritize sustainable scaling. Some bring strong opinions and directive advice. Others ask questions and help founders think through options.

Neither approach is inherently better—but mismatches create friction. A hands-off investor paired with a founder who wants active guidance leaves the founder under-supported. An aggressive growth-focused investor paired with a founder building deliberately creates constant tension over strategy.

Cultural match also encompasses communication styles, risk tolerance, and views on difficult decisions like down rounds, pivot discussions, or team changes. These dimensions determine whether the founder-investor relationship strengthens the business or becomes an ongoing source of stress.

The “Why” Test

Trey’s framework culminates in what might be called the “why test”—ensuring investors truly understand not just what you’re building, but how you’re building it and why those approaches make sense.

“Understand what we’re building, how we’re building it and why we’re building it,” he stated as the ultimate bar for investor fit.

This test reveals whether investors grasp your strategic logic. If you’re building a complex enterprise product with an 18-month sales cycle, do they understand why you’re not pursuing a freemium model? If you’re investing heavily in customer success before scaling marketing, do they understand why that sequencing matters in your market?

Investors who understand the “why” can challenge your thinking productively. They might question specific tactics while supporting the overall strategy. Investors who don’t understand the “why” will constantly push for approaches that seem logical in general but don’t work in your specific context.

The Luck Factor and Its Limits

Trey acknowledged that Siftwell got somewhat lucky with their initial investors. “We do a lot of that. And then we got really lucky, to be honest,” he said, describing their investor relationships.

“All of our investors have been really good. And I’m not saying that because this is going to be public. These are folks that know the space can really help us out.”

But luck isn’t a repeatable strategy. The learning from positive experiences with Alicorp, Ark, and Tao is understanding what made those relationships work—then deliberately seeking those qualities in future investors rather than hoping to get lucky again.

This is the value of founder-led diligence. Early rounds might involve taking money from whoever will write a check. But as companies prove themselves and gain leverage, founders can be more selective—actively screening for the experience match, industry expertise, and cultural alignment that create productive board relationships.

The Due Diligence Process in Practice

What does rigorous founder-led investor diligence actually look like? Based on Trey’s framework, it involves several specific actions:

Deep reference calls. Don’t just talk to the investor’s suggested references. Find founders in their portfolio—especially those whose companies struggled or failed—and ask about the investor’s behavior during difficult times.

Industry reputation research. Ask around in your industry. What do other healthcare founders say about this firm? Do they have relevant expertise or are they tourists in the space?

Partnership discussion. Have explicit conversations about communication cadence, decision-making approach, and how they typically work with portfolio companies.

Scenario planning. Discuss hypotheticals. How would they respond if growth slows? If you need to pivot? If a key executive leaves? These conversations reveal their actual approach versus their pitch deck.

Board observation. If possible, attend a portfolio company board meeting as an observer. See how the investor actually operates in the boardroom.

Expertise validation. Ask detailed questions about your market. Can they discuss industry dynamics intelligently or are they faking familiarity?

The Long-Term Mindset

Investor diligence requires a long-term mindset that’s difficult to maintain when you’re desperate for funding. The pressure to close a round can override concerns about investor fit. The fear that passing on one term sheet means losing all funding can push founders to accept suboptimal terms or partners.

But as Trey’s observation about other founders suggests, the cost of a bad investor match compounds over time. The wrong board member creates friction in every strategic discussion, every subsequent fundraise, every crisis. That friction slows the company down and creates ongoing stress for founders.

Taking extra time to find the right investors—even if it means extending the fundraise or accepting a slightly lower valuation—often proves worthwhile over a seven-to-ten-year company building journey.

Applying the Framework

For founders approaching fundraising, Trey’s framework offers a practical checklist:

Experience match: Have they worked with companies facing similar challenges? Do they understand the timeline and dynamics of your market?

Industry expertise: Can they add value beyond capital? Do they know your market’s key players and dynamics?

Cultural alignment: Do their working styles, communication preferences, and strategic approaches align with yours?

“Why” understanding: Do they grasp not just what you’re building, but why you’re building it your way?

The best investor relationships feel like true partnerships—where the investor brings relevant experience, helpful connections, and strategic perspective that makes the founder and company better. The worst feel like ongoing conflicts where the investor doesn’t understand the business and constantly pushes for mismatched strategies.

Founder-led investor diligence is how you increase the odds of the former and avoid the latter. As Trey learned from watching others and now practices himself, due diligence isn’t just the investor’s job—it’s the founder’s responsibility to their company and themselve.