How to Find a Venture Capital Firm Aligned with Your Values
You’ve got the ideas. You’ve got the plan. You’ve even got a potential staff. What you don’t have is the money. Pairing with a venture capital firm can be promising but precarious.
These firms can lend incredible power, funding, and advice to guide your business to the outcomes they expect, but at the end of the day, it’s still your company. For a successful union, it’s critical to define your values in terms of the market, growth targets, revenue goals, and potential exit strategies for both parties.
Research Relentlessly
Investigating your proposed partners can be intimidating and exhausting. Here are tips to get the ball rolling:
- Consult other companies the firm has invested in, or reach out to people in your network who can tell you about their experiences.
- Look for press coverage, new locations, or expansions in service to get a sense of the firm’s expected growth rate (the growth rate it expects from companies it invests in—not the VC firm itself) and previous successes.
- Search online VC directory sites. Some are grouped by industry and seek to connect entrepreneurs and VC firms through online profiles.
Evaluate Yourself
Once you’ve done your homework, you need to approach VC firms with a clear understanding of your identity and ambitions.
What is it that you want? Is it strictly money? Are you looking for connections? Do you want to receive mentorship and advice? Make sure you’re clear on what you’re hoping to gain from the relationship.
You also need to understand your personality to find a compatible firm. Possible friction between the leadership team and the VC firm will only magnify over time. Any initial lack of trust can hamper operations and communication indefinitely.
Evaluate the Firm
You need to gauge the firm’s character to determine whether you’re in alignment. A few targeted questions can help you through this process:
1. How experienced is the firm in your market?
Establishing shared ideas about the future of the company depends on the VC’s handle on the field. This can be especially important for setting revenue and growth expectations. If you’re an expert in an unfamiliar market, make sure the VC is willing to learn from you.
2. What’s its exit strategy?
Get a clear idea of when the VC firm expects to walk away and what its profit goals are. If you’re expecting a long, steady build and the VC wants to exit after a few high-growth years, the relationship will be rocky from the outset.
3. How does the firm view its role?
Be clear on how involved the VC firm will be and the frequency of communication it expects. Does it want to give advice? Give input on staffing decisions? Or does it only expect quarterly updates? Make sure you’re comfortable with the firm’s level of involvement.
4. What are its expectations for growth and return?
Ask the firm how much money it needs to make to feel comfortable. This will tell you what ROI it’s anticipating, how comfortable the firm is with losses, and how quickly it expects to see money. Define numbers you agree on and document them.
5. What are the best (and worst) practices the firm has seen from entrepreneurs in the past?
The answers to these questions can serve as fair warnings as to how the VC firm likes to be treated and how it may have been burned in other dealings.
When to Walk Away
If you have major disagreements on any of these topics, don’t be afraid to walk away. Finding a good fit is essential for the success of your company. You want a firm that will help build your business—not take it away from you.
Teaming with a VC firm can feel like a huge, intimidating step. Defining your values and long-term goals and matching those with a VC firm will determine the success of your relationship. If you do your research and ask the right questions, you won’t have to fear signing on the dotted line.
Can a VC firm possibly take your business to the next level? What compromises are you willing to make, and where is alignment most important?
Published: March 18, 2014
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