July 10, 2011
This article addresses how you can identify the venture capital firms that will be right for your business. It is a two-stage process, with the first stage requiring you to consider the seven key factors that determine the fit between your business and a subset of all venture capital firms. The second stage involves creating a master list of venture capital firms to contact.
Stage One: Evaluate the Seven Key Factors in Finding the Right VC Firm
Before you contact any venture capital firms, consider these seven factors:
1. Location. Venture capitalists typically prefer working with a business that operates within a 100-mile radius of their firm.
The proximity lets them become more involved with the business and add value.
2. Sector Preference. Venture capital firms typically specialize in a single sector, such as healthcare or technology.
Find venture capital firms with expertise in your sector.
3. Stage Preference. Likewise, venture capital firms typically focus on businesses that are at a specific stage of capitalization. Examples of these stages include pre-seed funding, seed funding, early stage investment, later stage investment, and mezzanine financing. Find VC firms that focus on your company’s funding stage.
4. Partners. Identifying venture capital firms with partners who have worked in your industry sector is the ideal scenario.
Those partners will take seats on your Board of Directors if the firm elects to provide funding to your company.
5. Portfolio. Look for venture capital firms with portfolios that include companies in your sector. Synergies with the other companies in a venture capital firm’s portfolio are important, and the stronger the synergies, the better your likelihood of obtaining funding.
6. Assets. You want a venture capital firm with deep pockets, because more available capital increases the likelihood of future funding rounds.
This step will prevent the need to identify a different venture capital firm in the future.
7. Fit. “Fit” is actually a shorthand way of describing personal and professional chemistry. You and the partners of your
venture capital firm must be able to work well together because they’ll have seats on your board.
Stage Two: Create a Master List of Venture Capital Firms to Contact
Creating this list involves three steps:
1. Make a list of venture capital firms. You can generate one on this website.
2. Narrow your list. Look at three main factors: location, preference in stage of development, and market sector preference.
3. Determine whether the firms remaining on your list are still active. If a VC firm has not made any investments within the last calendar year, it is dormant and is probably not looking for new investment opportunities.
Once you’ve created a list of VC firms that offer potential for partnership in your business, you can begin identifying and contacting the right individuals at those firms.
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