Attention Female Entrepreneurs: Here's a Step-by-Step Guide for Picking the Right VC
Venture capitalists should court you into doing business with them, begging you to let them invest, not the other way around. Just like any dating situation, it's all about finding the perfect fit. So, if you meet investors who do not understand you or your business, take in their queries and criticism and use them to help you better your positioning and business plan, but don't let it deter you from moving forward. There are plenty of fish in the sea, so look closely and pick wisely.
If you are a female founder, first-time or experienced, do not be discouraged by the occasional "mansplaining" or perceived resistance from firms that are not used to seeing women in positions of power. Don't get frustrated; understand that society is shifting, and thanks to movements such as Allraise.org, there are many funds that will understand your vision, and believe in your ability outright. Use criticism, warranted or not, to better tune your proposition. Nothing good comes out of everyone telling you what you want to hear -- the best businesses are those that listen and grow from all sorts of resistance!
Ultimately, finding the right VC for your business can make or break your startup's future. There is nothing more dangerous to an early stage entrepreneur then being trapped in "purgatory" with one of her VCs. Countless times our firm has seen incredibly talented entrepreneurs with amazing ideas be completely stifled by the VC's they "lusted" after, but never really connected with.
In our opinion, much like successful relationships, truly healthy founder-VC engagements only provide real value when both sides have intimately evaluated all aspects of their potential partnership. It is important for both sides to find a partner that they truly connect with, who profoundly understands their strengths and flaws, and looks to maximize the former while minimizing the latter. These are the partnerships that when executed correctly, catapult businesses to their maximum potential.
While this seems like common sense, it is surprising how often this is not the case.
So, how do you choose who to pitch to in the first place?
Don't waste your time on the wrong potential candidate.
Make a list of venture capital firms in the core cities of interest to you, and find out which ones are specifically investing in the stage and type of business/market you are building. What is the "thesis" of the venture firm? Is it early, seed, series A or B, etc.? Does it have a history of investing in and understanding female-led companies or businesses with diverse executive teams? Does it like to lead rounds or follow alongside a larger venture capital firm? Get to know who you are pitching to before you pitch to them. We cannot begin to tell you how frustrating it is to receive pitches from companies who clearly did not do their homework on us.
Also, do not cold call. Venture capitalists' inboxes are flooded with good ideas or people claiming that their idea is revolutionary. So, part of our filter is who is bringing us the opportunity in the first place. The likelihood of us spending time reviewing a pitch that was introduced to us from someone we know and value is high. Cold calling almost never works.
Make a wish list of venture firms, and then work on meeting them at conferences or dinners. Tap into your network or find creative ways to contact them. Where there's a will, there's a way, even if you live under a rock.
After you have compiled that list, ask your network about the venture capitalists you are meeting. Have they added value, as they claim, to their existing portfolio companies? Talk to an entrepreneur they have backed -- how has her experience been?
Market fit is essential.
Any entrepreneur who has raised outside capital for her idea has gotten the inevitable question, "How's the product-market fit?" When VCs ask this, they are trying to gauge the viability of an idea within the framework of a specific market. If the product doesn't fit its intended market, the idea is dead before it even starts, and therefore it is an important metric to analyze, especially at the earliest stages.
For entrepreneurs evaluating VCs, we believe this is also an incredibly important metric on which to base your decision: Can the VC truly be helpful tackling the problem you are attempting to solve, and the market you are attempting to serve?
Experience is everything.
With experience comes understanding, and it this intimate level of understanding that we believe to be the most important aspect of truly successful entrepreneur-VC relationships. If you can find a VC who has been in the trenches in a certain market or product category, his or her experience often provides an invaluable road map to avoid unexpected pitfalls.
We at Muse Capital personally love co-investing with funds that have partners with operational experience -- especially when they are coming in alongside us into a deal where one of their team has subject matter expertise. Not only do these companies tend to be far less volatile on a month to month or year to year basis, but the relationship across both sides of the table is healthy and cooperative. These kinds of companies are absolute joys to invest in.
Pay attention to the emotional quotient.
For the most part, everyone in venture capital is what you would consider "book smart." The industry is filled with high-performing individuals who have excelled throughout their educational and professional careers. However, in our opinion that only gets you so far.
A vital aspect to consider is how the VC is as a person. One of our favorite ways to gauge the personality fit for VCs and entrepreneurs is to give the VCs the "road trip test."
The road trip test is an exercise where you imagine yourself stuck in a car with your VC for the next five hours, driving from San Francisco to Los Angeles. Will that car ride be one of spirited discussion, or will it be one of long, awkward pauses? Is there honest and transparent conversation or mere pleasantries? Will you remain cordial --even when you can't agree on a radio station?
If you're lucky, over the next few years of building a company, you are likely to spend countless hours talking with your VCs, probably spending more time with them than many of your friends and family members. It is important not only that they be helpful, but that you can maintain a positive working relationship with them through long hours and tough times. Entrepreneurship is an inherently collaborative exercise, and it is the best team, not individual, that often comes out on top.
Finding complementary VCs who augment your strategy with deeply embedded relationships, subject matter expertise and personal experience is far more valuable than money itself.