Today more than ever, there are many different funding options for early stage startups. Venture firms alone have invested more than $33 billion in U.S. startups through the first three quarters of 2014,?already surpassing the $29.8 billion total that VCs invested in all of 2013. The main reason for this increase in venture funding is?the emergence of more non-traditional investors, like hedge funds and mutual funds,?according to?MoneyTree.com?.
With the influx of new VCs in the arena, how can you tell which VC is right for your startup?
1. They have good references from startups and VCs.
Get a reference?before you ask for a meeting with a VC.?What do previous or current companies they?ve invested in say? Other key questions include:
Do other VCs they have worked with commend them for their collaboration?
Have they made historically successful investments? What is their track record?
Where is this company at in terms of overall performance?
What stage is the VC fund in? Do they have reserves?
Nobody?s perfect, but you?ll be able to tell pretty quickly if a VC has a history of being fully committed and supportive of their companies, or bull-headed, arrogant or otherwise difficult to work with. While different VCs have different styles, I?ve found very little gets done with an incompetent person in the room.
2. First, they listen.
One of the undervalued skills of a good VC is listening. The difference between making a directional change and having some much needed time away lies with a good listener. It also means that you understand the value of letting the CEO lead the company.
A good VC will only interfere when necessary, not at every opportunity, to simply express his or her opinion.?They?re also not concerned with bull rushing their way into the company or always being right. That is important because innovation is happening at a staggering pace, all around us, and not just on the product/service side of things. Innovation is changing even business plans and the way money is made.
You can?t simply apply what has worked previously in another scenario. Listening to the market, customers?and other members of the board are all vital to succeeding in the good times and the hard times.
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