October 4, 2012 | 4-minute read (709 words)
To raise or not to raise...that is often the question for early-stage startups—and who to raise from? (see my previous blog post on Angel Investors vs Venture Capitalists). Once you’ve considered your options, if you decide to raise VC capital, the next step is finding the best VC firm for your company. At first you may think this is a case of beggars can’t be choosers: you may be ready to take money from anyone who’s willing to give it to you. But there’s more to getting startup capital than just the money.
The VC that you choose will shape the future development of your company. Beyond the money, your VC will provide insight, support, and an extended network. Your relationship with your VC is unique: they pay you and work for you—where else do you find that?
The process of finding the right VC is a lot like dating; personal chemistry is paramount—you either click or you don’t. But there is also more to “attraction” than intangible chemistry—a lot depends on the tangibles: what the VC can bring to the table.
To find investors who will add the greatest value for your startup, consider the following questions:
1. Do they have the key strategic relationships you need? You’ll want to do your research and take a close look at the kinds of relationships they have with partners and customers. What you’re looking for is evidence of the VC’s ability to help connect you to your potential customers.
2. How much money will they be willing to invest in follow-on rounds? Sure, the initial investment is important—it’s the first step. But you want to know that the door is open for future rounds as well. Don’t just take into consideration the amount that the VC is willing to invest initially, but the amount that they will invest over the long haul.
Contact Early Growth Financial Services for long-term financial planning to find out how much money your startup needs to grow.
3. What is their reputation? A good resource for researching VCs is The Funded, an online community of 18K+ entrepreneurs. CEOs can join for free (other execs, lawyers, consultants, etc. must pay a membership fee) to have access to profiles of over 4,000 funds, including rating and reviews, plus discussions on funding terms, models, and the practices of venture financings.
4. What is their investing philosophy? Different VCs have very different philosophies. Some are quick to kill companies are some are much more entrepreneur friendly. Some have a history of flipping management teams, etc. Consider your vision and goals and find the VC firm that aligns with your philosophy.
5. Will they be an invested and reliable sounding board? Experienced VCs have worked with many startups. You want to find a VC that has the experience that helps them lend an ear, give advice, and help you stay on track—without making the same common mistakes that so many startups make.
6. Will respect be mutual? This may be hard to gauge, but it’s very important. Will the VC respect your business and you, personally? And, on the flip side, do you trust this firm? You want to be assured that they will protect your interests.
As with dating, the goal here is to find the right partner, not just to settle for any partner at all. Listen to your intuition and hold out for the VC who shares your goals and can support you. You may think you’re in no position to be choosy, but you are—and you can.
Are you in the process of looking for VC? Tell us about it in comments below or contact Early Growth Financial Services for help targeting funding.
David Ehrenberg is the founder and CEO of Early Growth Financial Services, a financial services firm providing a complete suite of financial and accounting services to companies at every stage of the development process. He's a financial expert and startup mentor, whose passion is helping businesses focus on what they do best. Follow David @EarlyGrowthFS.