Choosing a venture capital firm to raise from
Is the say “Money has no smell” true when it comes down to who you should choose to invest in your company?
Once or twice a week, I receive an email from a fellow founder asking me, “is firm X or Y is a good choice? What’s your experience with them?”. To answer this common question here is my answer nine times out of ten.
It mostly doesn’t matter; what matters most is whether or not you like the partner leading the investment.
Now that the TL;DR is out of the way, here is the extended version
The partner leading the investment matters most because they will be sitting on your board. With other board members, they will partially dictate how your company operates. If they want an observer seat, that matters less, but that individual will influence the course of your business in the years to come.
Founders must get to know that partner. There are no right and wrong answers as it depends on your ambitions for your company. But the two should line up. Learn
- Why they’re interested in your company
- Why they’re interested in you as a founder
- Their experiences in your industry
- What previous investments they’ve made
- What are their goals for your company - Do they prefer going public or selling?
Important tip: Make sure to talk to founders from other companies where this person has led the investment. Backchannels are preferred.
Don’t just pick companies that have crushed it, select companies that have struggled. People show their true colors when the going gets rough, and you want to know if you’ll be able to handle the partner.
The VC firm does matters still.
Large and established funds have a great network of other startups or public companies they invested in before. These firms can turn into partners or sales leads.
You’ll have an easier time getting introduced if that firm has an investment in that company. Top-tier VC will also attract the best talent.
Finally, modern VC firms offer services for recruiting, advice, mentorship that can be helpful if you’re just starting your entrepreneur’s journey.
There’s no mathematical formula for which VC firm to choose. The best partner will be a choice that you, as a founder, feel comfortable working with for the next 5-10 years. Invest time and effort into learning more about them. “Money has no smell” is true; $ 5M invested from firm A, or B is $5M, but the partner leading your investment certainly matters!