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Entrepreneurs often think of venture capitalists primarily as being providers of money, but they have a far more important role: co-owner in your business. Great investors are able to leverage their experience, skills, credibility, and network to maximize the likelihood of success of your business. We strongly encourage entrepreneurs considering working with us to call any of our portfolio companies before deciding to work with us.
In evaluating which VC to work with, we suggest you ask these questions:
Does the VC have operational or other relevant experience?
The best VCs are those who have had experience in being a successful business-builder. Although it’s not critical (and there are certainly many exceptions), a VC who has had to build a revenue stream from scratch will usually be able to offer valuable operational advice to a young company.
Because many early stage companies haven’t had the experience to develop skills in scaling, marketing, hiring, etc., having a partnership with a VC fund with such resources can be an invaluable asset.
What kind of knowledge and background can the VCs bring?
Does the VC group have an in-depth knowledge of your industry? As a general rule, most entrepreneurs should know more about the market than their VC investors. However, it should be a red flag if they have to educate their VCs on the basics of their business and market. Entrepreneurs should aim for VC groups who have institutional knowledge about the business (and the industry/market). These are the VCs who are better suited to provide value and insight to the budding entrepreneur.
Does the VC have a strong network of contacts?
It’s hard to overstate the importance of the VC network to your business. A VC fund with people who can introduce and connect entrepreneurs to relevant industry people, and who can help hire key personnel, will be far more helpful than one who simply provides money. Consider that when you’re growing a company, you will eventually need people to act as customers, board members, partners, employees and other investors. Many of these roles can be more easily filled when you are dealing with a VC who is well connected within the industry.
Is there a cultural fit?
This criterion is a personal one, but one that should not be overlooked. Entrepreneurs should filter VCs to make sure that their values, goals and personalities are compatible. How open-minded are the VCs? What are their working styles? What are the values that drive the business/VC fund? Will the VC fund stick with the entrepreneur in times of trouble? These are questions that entrepreneurs should ask before going with a VC, since they will be “stuck” with certain personalities once the investment happens.
Has the VC had success in helping small companies grow?
Entrepreneurs should seek VCs with a strong track record of bringing a business to success. Look at both the companies in a VC’s current fund and those from previous funds. Speak with entrepreneurs from startups that failed. (Anyone who says he lacks failed investments is not an experienced investor.) Did the VC fund successfully help scale businesses? What happened to those companies that weren’t as successful? How much of a role did the VC play in it? What sort of operational push did the VC give for those that were “hits?”
How can the VC help guide the company’s strategic vision?
Because most entrepreneurs will be focused on the details of its day-to-day operations, most will not have the time or energy to think big picture. A VC fund who has had experience in the industry and who can think strategically will be able to help entrepreneurs focus on its long term goals and big issues. What sort of strategic vision can the VC and entrepreneur come to agree?
What stage, sector, size, and geography does the VC invest in?
When assessing a VC, it’s important to consider whether VCs specialize in certain sectors, development stages, capital sizes, and/or geography. Often times it’s important to identify with a VC who is considered a “local lead.” Having a “local lead” on the entrepreneur’s side can translate into easier funding from other VCs.