How to pick a VC (yes, you can pick them)
If I had a nickel for every time someone asked me if I knew a VC that they could contact about their new startup. Founders need to understand that not all VCs are created equal. Even partners within a given firm, the timing of an investment, the other portfolio companies, the risk profile relative to their last investment and a myriad of other factors play into whether or not a particular VC is even a solid fit. I find far more “no” answers from VCs being a poor fit rather than a bad opportunity.
Learning what makes a particular partner tick and sparks a personal interest can keep you in the conversation longer than those founders who simply believe that their VC partner will love their technology as much as they do.
Any VC will tell you that the worst part of their job is raising their own fund from their limited partners. If you thought raising $10M was tough, try raising $1B for a fund. As soon as a new fund closes, investors do several things – throw a party, publish a big press release, calculate their first year management fees and then find some hot deals to put that capital to use ASAP. Those early fund deals are often the highest risk profile deals that will be done in that fund. Fast forward to year 5 when the fund is largely invested and there are only 1-2 deals worth of capital left, and you’ll see the opposite – the most conservative, quickest turn, lowest risk deals done to try and show well for the next fund. Where does your company fit on the risk continuum?
If your company is at the higher beta end or the lower beta end, it can matter where the fund is in its own investing timeline. If there are already four security deals in the portfolio for the current fund, it may very well mean that they’re saturated with security deals and are looking for something to diversify rather than add one more deal that looks like all the rest or may even be competitive. Partners at funds have personal interests – kids, AI, environment, social issues. Learning what makes a particular partner tick and sparks a personal interest can keep you in the conversation longer than those founders who simply believe that their VC partner will love their technology as much as they do.
Do your research. You know what your customers want and you build a message and a product to scratch a particular itch at a particular price point. VCs are customers too. Know what they want, and give it to them at the right price at the right time.
