Today there are more funding options for early stage startups than ever before. In the first three quarters of 2014, $33 billion was invested in U.S. startups by venture firms alone, surpassing the $29.8 billion invested in all of 2013. It is truly an exciting time to be an entrepreneur.
Below I outline how to determine which VC is right for your startup:
1. They have good references from startups and other VCs
It’s important to get a reference before you ask for a meeting with a venture capitalist.
- What do previous or current companies they’ve invested in say?
- Do other VCs they have worked with commend them for their collaboration?
- Have they made historically successful investments?
- What is their track record?
- Where is the firm in terms of overall performance?
- What stage is the VC fund in? Do they have reserves?
From this, you’ll be able to tell quickly if a VC has a history of being fully committed and supportive of their portfolio companies, or bull-headed, arrogant or difficult to work with. While it’s important to note that different VCs have different styles, very little gets done with an incompetent person in the room.
2. They listen first
Listening is one of the most undervalued skills of a good VC. It means that they understand the value of letting the CEO lead the company.
A good VC knows only to interfere when necessary, not at every opportunity. They also will not bull rush their way into the company, assume they’re always right, or apply what has worked in a previous scenario. This is especially important because innovation is happening at a staggering pace — even changing business plans and the way money is made.
Listening to the market, customers and other board members are all vital to succeeding in the good times and the hard times because
3. They don’t run at the first sight of blood
You should test their commitment to your idea, the company and the team.
- Do they talk about it and actively promote your company?
- Are they genuinely as excited about growing the company as you are?
- Will they be your “fox hole buddy” when times get tough?
The best VC for you will be very excited about partnering with your company and will bear down with you when things get hard – because it will get hard.
4. Their focus is your success
The right VC knows that their job is to work for you, not the other way around. Their main concern should be how they can make the CEO insanely successful! They should instinctively know how to do more with less intervention.
If they only engage at certain strategic points, it prevents them from meddling too much, becoming a distraction, or worse, a dictator pushing their own agenda.
The people you surround yourself with at the table will make all the difference in the result of your company. That’s why it is so important that founders know how to build an effective board. And along those lines, that there are certain personalities that are harmful to have at the table. By far the worst is the VC who sees their success as more important than yours.
If you ever have serious concerns about the VCs interested in investing in you, it is important to consider if venture capital is the best option for you or not. There are many options for funding early stage companies and the future of yours will depend significantly on the people you choose to partner with. Selecting these people carefully is a decision worth putting every thought and consideration into.