Selecting a VC

As I have always stressed, it is exceedingly important to know who your partners are. Accepting an investment from someone you are unfamiliar with can be a recipe for disaster. That being said, the timing seemed right to put together a quick guide to help entrepreneurs evaluate venture capital firms. You can quickly find other comments on this topic from other VCs including Stephen Hall Finding the Right VC, Jeff Nolan Pick Your VC Carefully and Jeff Clavier Pick Your VC Carefully...If You Can.

Find an experienced VC that has been in your shoes

Find a venture capital firm that is filled with people that have been in your shoes as entrepreneurs and have been successful at it. Do they understand your space enough to challenge you when it matters most? Are they passionate about your business and able to add to your vision? Are they able to open doors for you to potential customers and partners? Make sure they will stick with you both in good times and bad.

Performance speaks for itself

How successful has the firm been? How have their portfolio companies done?

Will the VC give you the time that you deserve?

Some VCs sit on a ton of boards. Are the partners stretched too thin? Find out which partner will be working with you and make sure they will have the time it takes to give you the attention you deserve. But also make sure you readily have access to their entire team and advisors.

Find someone local

If possible, try to get a local investor to be part of the round. If you want to bounce ideas off someone quickly, having someone close by works really well.

First impressions are important

In the first meeting with the venture capital firm, do they seem anxious to get you out the door in a hurry or do they spend time with you learning the business and offering advice? What kind of questions do they ask? Are they the standard questions everyone asks or are they engaged and ask questions that show they understand your business?

Make plenty of calls before partnering

Make sure you do your homework. I would suggest calling around to see what people say about the venture capital firm you are speaking with - especially as the conversations mature. Call the executives they have funded, accountants, lawyers, etc. What is their experience with the VC? Any firm worth their salt will connect with an executive within any of the companies they funded.

How connected is the firm to help with future financings?

Think about the future. Again, as the conversation matures, ask them about what other firms they prefer working with and who might have an interest participating if you need more financing down the road. Do they have the right network to bring in larger funds if needed? Do they have a track record of jumping in and helping make introductions or do they leave that in the hands or the entrepreneur?

Is the VC a long term, big thinker?

Are the partners patient investors or are they more interested in selling the company in a few months? Partner with someone that can add to your vision to build a large, sustainable business and has the patience it takes to get there.

Are the partners fun to be with?

Can you picture yourself partnering with them and working with them for 5 to 7 years or longer? A local VC told me recently that as part of due diligence, he plays golf with the CEO. You learn different things when you are not in a business environment. It doesn't have to be golf - maybe it is as simple as dinner and drinks, but get them out of the normal business environment and you will get to know them even better.

Comments

[Dan Cornish]

Wow are you ever right. But, when you are running out of money and only have a limited amount of time, you will do almost anything to stay alive. I think the biggest lesson I have learned is to make sure you can stay alive long enough to have the time to find the right VC.