Research Your Potential VCs
Investors may be funding your venture, but that doesn't mean you shouldn't be doing your homework on them. Here are three things you should find out before you partner up.
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.
Entrepreneur Editors' Picks
How an Encounter With the 'Armpit of Destiny' Helped the Founder of Grubhub Take His Business From His Apartment to a $2 Billion IPO
You Can Train Your Brain to React to Stressful Situations Better. Here's the 3-Step Process.
A Disastrous Valentine's Day Inspired This Founder to Launch Her Own Floral Brand. It Became a Celebrity Magnet With Retail Revenue Up 450% Since 2019.
What Is Your Dream Job? Ask Yourself These 4 Questions to Find Out.
This Is the Crazy Process This Juice Franchise Went Through to Get USDA-Certified Organic. But It Sure Has Paid Off.
No One Would Rent Me a Café in Trendy NYC Neighborhoods, So I Tried Something Risky. Now I Have 3 Coffee Shops.