When you’re trying to raise money for your startup, it can seem like any funding offer is a good offer. Typically, however, venture capitalists (VCs) and angel investors don’t just hand startups money. More often than not, they will also have a seat on the board, meaning they’ll have a say in the company’s operations and decision making. As such, you want to be sure the VC you work with is going to be the best partner for your startup. But what makes a VC a “good” partner?
- The VC has the right knowledge and experience to meet your startup’s needs. For example, a VC that typically invests in late-stage companies will not be able to provide the kind of detailed guidance or have the same industry connections an early-stage company will need. Likewise, if a VC typically invests in health and wellness companies, they may not understand impressions, lead generation, sales funnels, or SKUs that an ecommerce company would need to consider. A VC who has in-depth understanding of your startup’s market, customers, organization, competitors, and industry thought leaders will be a valuable partner as your startup continues to grow and develop down the line.
- The VC doesn’t fall prey to set-up-to-fail syndrome. Think again about how your investors will probably claim a board seat: Would you rather have someone on your board who will tear you down in the event of stalled growth and make you doubt your abilities as a leader or who would you prefer to have someone who can help mediate arguments, dissolve tension, and provide guidance on things like valuations, future financing, or a potential exit scenario?
- The VC has core values similar to those of your startup. Just as you want your employees aligned around your strategic vision, so too should your investors. It’s more than terms or financing amounts – it’s about partners who believe in your company’s mission and who will stick with you over time. You want to have a real working relationship with these investors, and while they need not – and perhaps should not – agree with your every decision, they should have the best interests of the company in mind.
- The VC is open to providing references. References here mean opportunities to speak with other companies in the VC’s portfolio, which can provide you with information the VC may not be able to judge themselves on, including their track record for collaboration, mentoring and support infrastructure, and sensitivity. If other founders’ reports don’t match up to a VC’s glowing self-analysis, it may be time to look elsewhere.
- The VC has a convenient location to your startup. While this doesn’t necessarily have to be a deal breaker, having easy access to your investors and increased opportunities for meet ups is a big benefit. In fact, many VC prefer to invest regionally to decrease time spent traveling.
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