October 21, 2019  
 
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Raising Venture Capital

 

Choosing VC Firms

There's no "How to Raise Venture Capital" class out there, so you've got to pick up tips where you can find them. In this article on raising venture capital, we provide advice on choosing your venture capitalist.

Many entrepreneurs seeking venture capital assume that the venture capitalists call all the shots.
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If fact, as an astute entrepreneur, you should be evaluating venture firms and determining how well they understand your market.

What's their track record in your industry with companies similar to yours? If they've never backed a company like yours and another VC firm has a stronger track record in your area, it may make sense to take your business elsewhere.

How much capital do they have? Will their capital base be growing over time? Is their reputation strong enough to attract other investors for future investment rounds?

Talk to entrepreneurs who they have funded to find out what their experience has been with the venture capitalists in question. Beyond providing capital, how were they helpful in other ways? Were they jerks? When things got rough, how did they behave?

Your partnership with a venture capital firm is like a marriage - you need to get to know each other and decide whether things will work out before you tie the knot. It's a two-way street. They have to like you, and you have to like them.

Talking to multiple venture capital firms is always a good idea, unless you have a reason to move fast or one VC is giving you a deal that's too good to pass up. By having more than one suitor, you put yourself in a better negotiating position when it's time to draw up a term sheet. If you've got only one term sheet from one VC, and no counteroffers from another VC, it's hard to walk away from the negotiation table. So, make sure you keep more than one player active until you've got a binding term sheet from your favorite venture capital firm.

Of course, it's the ultimate luxury to be able to choose your venture capital firm. Only ventures with great prospects and a great management team have that luxury. Don't assume you're in the driving seat.

But, conversely, don't assume that they are in charge and you are just along for the ride. Nothing could be further from the truth.

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