When it comes to venture capital funding, most entrepreneurs are focused on learning what VC funds want to see in the entrepreneurs and companies in which they invest.
Venture capitalist funds only commit to a fraction of the business plans they review and in today's economy, securing VC funding is no easy feat.
Yet even though it can be difficult to get the attention of venture capitalists, it's just as important to make sure the venture capital funds you try to impress are capable of meeting your company's needs and your personal business goals. The worse case scenario is that your company commits to a VC relationship that is untenable and incompatible with your business objectives.
You'll only get one shot to get it right. So here are some of the features you'll need to look for when you evaluate prospective venture capital funds for your SMB.
- Industry Compatibility. Right away, you'll want to make sure the venture capital fund's experience is compatible with your industry niche. Successful VC funds situated in other industries will have limited value for your company. At a minimum, make sure the fund has at least one partner with a track record of industry successes.
- Personal Chemistry. VC funding is more than just a financial arrangement -- it's a working relationship in which the VC fund will work closely with your business for the foreseeable future. Unless you enjoy office politics and confrontational business relationships, make sure personal chemistry exists between your leadership team and your venture capital fund.
- Right Expertise. No entrepreneur or company excels in every business area. In fact, your company is probably weak in some areas that are critical for achieving your growth objectives. That's where you venture capital firm can help -- provided you take the time to make sure the firm you partner with is capable of providing expertise in your area(s) of weakness.
- Synergistic Relationships. Keep in mind that your company isn't the only company in the venture capital fund's portfolio. Ideally, your VC fund will have investments in other companies in your sector and will be interested in creating synergies that will advance everyone's interests.
- Exit Plan Alignment. Count on the fact that your venture capital fund will clearly define an exit strategy in the terms sheet. If everything else seems right, but the VC fund's exit strategy doesn't line up with your goals or vision, you can't move forward. Keep looking for a venture capital fund that is more closely aligned with your personal and professional goals.