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March 29, 2010

How to Select a Venture Capital Firm

Not all venture capital firms are created equal. They differ widely in a number of different variables. When seeking venture capital investment, you should narrow your search to firms that would be most interested in you.

Fund Size. More likely than not, your company will require additional equity capital in the future. If a venture capitalist has a large fund available, they are very likely to be interested in making further investments in the future. Follow-on rounds can be much easier if you simply use the same investors.

Location. Like angel investors, venture capitalists prefer to invest close to their physical location. This allows for more interaction between the investor and the investee. Managing such a relationship is easier if you don’t have to deal with time zones and geographic barriers. VC’s try to stay within 100 miles of their office.

Other Investments. What other companies has the venture firm invested in? It works in your favor if their portfolio includes other companies who work in related fields. Often, they form a network that can be mutually beneficial for all parties. You may have synergies with these companies. This makes your firm much more attractive to venture investors.

VC Firm Leadership. Remember, venture capital firms are made of people. These people all have specific expertise in slightly different areas, and they seek investments in industries with which they are familiar. If you choose the right firm with the right partners in leadership, they will support the growth and development of your startup with knowledge and expertise.

Early, Mid, or Late Stage? Venture capitalist firms are often selective about investing in certain “phases” of a company’s development. Some prefer to offer seed capital, others prefer companies that already have significant operations in place. Find a firm that invests in companies at your stage.

Industry. This is among the most important factors in choosing investors. It probably doesn’t make sense to reach out to medical device investors to fund an enterprise software company. Even if your company is sure to be a star performer, venture capitalists probably won’t invest in you.

If you spend a little bit of time screening venture capitalists before contacting them, you’ll save yourself some time and effort, and increase your chances of successful funding.

Click here to learn about a proven, step-by-step method for raising venture capital.

All the best,

Amir

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