June 26, 2010
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This article explains how to identify the right venture capital firms for your business. There are two halves to the process. The first half is considering the seven key factors that determine your fit with a subset of all venture capital firms. The second half is developing your list of firms to contact.
1st Half: Identifying The Seven Key Factors of Finding the Right Venture Capital Firm
Consider the following factors before seeking a venture capital firm:
- Location. Most venture capital firms prefer to work with companies operating within 100 miles of the firm, as this allows them to become more involved with your company and add value.
- Sector Preference. Most venture capital firms specialize in one sector, e.g., technology or healthcare. Aim for venture capital firms that match your sector.
- Stage Preference. Most venture capital firms focus on companies at a specific stage of capitalization, i.e., Pre-Seed Funding, Seed Funding, Early Stage Investment, Later Stage Investment, or Mezzanine Financing.
- Partners. Venture capital firms who employ partners that have worked in your line of business are ideal, as they will end up on your board of directors should the firm choose to fund your business.
- Portfolio. Seek venture capital firms whose portfolios include companies in your field. The stronger the synergies with the other companies in a venture capital firm’s portfolio, the better your chances of getting funding.
- Assets. Look for venture capital firms with deep pockets. This might seem obvious, but it is useful to note that the deeper the pockets, the more likely the firm will fund future rounds of raising equity. This saves you time looking for another VC firm.
- Fit. This is a euphemism for personal/professional chemistry. You have to be able to work with the partners of the VC firm and vice-versa, as they will sit on your board of directors.
2nd Half: Developing Your Master List of Venture Capital Firms
There are three steps to creating a list of venture capital firms to contact.
- Generate a list of venture capital funds. You can generate a list on this website.
- Narrow the list of funds. The main factors when narrowing the list are location, stage of development, and market sector preference.
- Verify that each venture capital firm is active. If a venture capital firm has not made an investment within the last year, it is dormant and will probably not take on any new ventures.
Once you have your list of venture capital firms that would make for a great partner for your business, you can begin identifying and contacting the appropriate partners at the firms on your list.
OK, now that you have your list, the next step is your VC pitch.
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