What's their stomach for risk - in terms of monthly volatility, and maximum peak-valley drawdown size & length? I mean ones who would be involved with smaller startup or recent hedge funds, not institutional size players.
While the investors are prepared to give a proven manager with a real track record more leeway there seems to be a magic number. Once you head south by 20% they are nervous ... by the time you hit minus 25% you are spending so much energy fielding calls from investors it will almost certainly impact your ability to be effective. I syndicated producing oil & gas properties in Europe in the late 70's and got to know a few small Swiss, Italian and German fund managers quite well. I gleaned this from my conversations with them. Again, if you have shown them a few good years without significant draw down they are more sanguine
An ex-colleague of mine who now runs a large fund said that when they first started (with like 50MM in mid 2000's) a down month was akin to death (especially in the first few months). After 4 years of consistent performance, down months don't hurt.
By general rule of thumb, your worst DD "should" be less than half of your (target) annual returns, especially early on. Beyond that it's really about setting expectations. If you surprise them in a negative way, you're in trouble.
Common sense I would imagine. Remember this, people not involved in the financial markets are complete morons when it comes to performance expectations. They think that 'money makers' should operate like an oil well, ie pump the same amount of profit every month. They cannot understand that some months might be losses whereas others good profits leading to a very good end of year percentage gain. That's why big drawdowns are the kiss of death.
When I was a CTA trading for a fund ( I am retired and no longer maintain licensing or trade OPM). ES