How to select a venture capitalist

Generally an entrepreneur starts the process of looking for venture capitalists by preparing a business plan. Sending unsolicited business plan to various entities doesn’t work. The best way to meet a venture capitalist is through a personal introduction. An attorney, accountant or other professional who works in the field, or a business broker who provides services for compensation can arrange it. Another way is through special events where entrepreneurs have a chance to introduce their businesses and pitch it to the investors. In addition, there are multiple platforms, such as venturebeat.com, techcrunch.com, and the funded.com, which can be a good way to start the courtship process.

 

Once introductions are made, meetings are arranged, and interest is expressed, the evaluation process begins. Venture capitalists generally know what they want, will let the company know quickly and start their process of due diligence. Due diligence is performed by attorneys, accountants, and other professionals who may be considered industry insiders.

 

Hungry for cash entrepreneurs may be willing to accept all and any money they can get. However, it is important to remember that venture capitalists usually bring more than money. They bring certain business expertise and want to exercise certain control over the operations of the company, which may help or hurt the business. When entrepreneurs accept venture capital in exchange on the company equity, they are factually accepting a new partner and should take proper precautions. There are a number of questions that entrepreneurs may ask the prospective investors to gather information about the fund.

 

What other companies venture capitalists invested in?

Are there any other companies in the venture fund portfolio, which may be direct competitors?

On what boards does a VC sit?

Will the VC be willing and able to participate in the following rounds of financing?

What are VC’s views on the management of the company?

What level of control a VC expects?

What is the time horizon for the investment?

What rate of return does a VC need to earn?

 

Entrepreneurs may also want to meet with founders of other companies venture capitalists invested in and discuss what kind of partner the prospective investor may make. It is important to ensure that founders and potential investors are on the same page regarding the business development and ultimate results.

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