Research Your Potential VCs

The relationship between entrepreneurs and venture capitalistsoften seems almost mystical, one in which business owners feelcompelled to yield without question to the wisdom-and wallets-offinanciers. But in truth, you should evaluate potential investorsas you do any other professional service provider, says SteverRobbins, owner of Cambridge, Massachusetts-based VentureCoach.comInc., which coaches executives on, among other things, how to pitchto investors.

When you're evaluating investors, says Robbins, talk toother companies they've funded to find out the following:

• Are the VCs helpful and easy to work with?
• What kind of responses do they give when the company runs intoproblems? Are they cooperative or adversarial?
• When the entrepreneurs need the venture capitalists' help,do they get the attention of a partner or just an associate?

In addition, Robbins suggests obtaining a referral to one of aventure firm's former portfolio companies that didn't workout. "First, you want to know if the VC is willing to discloseits imperfections," says Robbins. "Then ask the departedcompany how the venture company dealt with the firm when it raninto trouble." The answers to these questions should give youa more complete picture of who and what you might have to deal withif you decide to work together.