How Do You Choose The Right Venture Capitalist?
We have talked a lot about networking, how to build your pitch deck and looking for investments beyond and up to working with a venture capitalist. All of those steps however are about getting to a goal, achieving a new level.
As important as that is, there are other elements to consider. Here are some thoughts on what can go into forming the crucial and game-changing relationship that taking on a VC creates. After all, where those previous endeavors can be arcs in your story, the type of relationship and choice of VC you build it with will be entire chapters.
To start, realize that a VC investment goes beyond the money. For all intents and purposes this is the business version of a marriage, possibly even stronger. So start with keeping your prospects focused by looking local. If your base of operations is geographically far from your prospective VC’s the lack of ease around person to person meetings will be a hindrance.
You want to look for someone who is based in the same place. Keeping it local makes a coffee catch-up doable. This helps not only in personalizing the dialogues between you but also in facilitating introductions between other connections that the VC may have locally. Being part of their network can never be underestimated or duplicated by the investment alone.
How diversified is the VC you’re considering, and how much are they targeted on your specific area of offering? If you are a strictly software oriented firm it may not be worth spending time targeting a hardware focused VC.
You’ll want someone who already knows and inhabits the sector you occupy. Being able to talk on the same level and not have to explain or translate matters is important.
At the same time though you will also want to remove any prospects who are already working with companies that you may have conflicts with. Taking the chance of idea leak occurring – even with an NDA in place – is just not worth it.
Talk with some of the other firms that are working with the VC to get a sense of what their dialogue style is. Often it takes one of three paths.
The Mentor. The type who takes great interest in grooming and building the founders. These are the ones who want to coach and guide, so expect and be up for frequent interactions and regular visits.
The Observer. This is most often the case in later stage financing. Not much back and forth but rather regular updates and check-ins around the metrics. They don’t want to tell you how to drive, they just want to know where along the road you are.
The Confidante. This type acts as a blend of the other two. Trusting you to have focus but ready to step in with expertise and experience to help you shape new developments and handle any challenge.
Whatever style they have make sure it is something you feel comfortable working with. Whether you have a compatible ability to work in tandem or autonomously with minimal contact.
The most important thing overall as you are getting a picture of how they interact from others is to also gauge how they’ve handled a challenge.
It is inevitable that something will come up and the emotional intelligence they have in dealing with it will be one of the strongest assets of this partnering. As the seasoned player in the relationship you want to know they can guide you and your firm. In turn you want to be able to be as transparent and comfortable discussing shortcomings and difficulties with them.