How to choose the right VC for your startup

By Rahul Aggarwal

Being the first significant stage of support for a new idea, venture capital funding can make or break a startup. The involvement of a VC firm does not merely imply an exchange of funding and equity, but is also helpful in guiding and mentoring an emerging business as it looks to establish itself within its target market segment. However, getting a VC on board is no easy task, and entrepreneurs must keep a few things in mind while choosing their source of funds:

References While looking for VCs to fund one’s venture, interacting with startups and companies which have previously secured investments from VCs is a viable tactic. These interactions can provide an entrepreneur with a lot of information about a particular VC firm, including its collaboration history, its mentoring and support infrastructure, its reserve funds etc. These opinions and references can help entrepreneurs have a more holistic idea about the VCs that they are dealing with, and help them in determining whether a particular VC would be suited to invest in their startups.

Sensitivity One of the important questions that entrepreneurs must ask themselves while choosing a VC is this – are they sensitive to the nature of entrepreneurship? A supportive firm will be willing to listen to everyone – the board members, the customers, the market, and, most importantly, the startup founders. Enabling the CEO to lead the company and only intervening when necessary are good traits to look out for in a VC firm. Innovation has a unique pace and nature, things which are not necessarily always visible on the product/service side, and the VC firm must respect the startup’s timelines for growth and scale.

Experience It is crucial that a VC firm has the industry experience which is relevant to the sector its investee startup is operating in. With a lack of first-hand knowledge of the way a segment operates, the VC firm’s mentoring capabilities become questionable. Such a situation will inevitably lead to many non-productive venture meetings, which might hinder the startup’s momentum and frustrate its founders. It therefore becomes extremely important to read up on the profile of the firm and those leading it in order to determine whether a particular VC can add value to a startup’s operations.

Conviction At the root of every startup lies a new, exciting business idea which has the potential to disrupt the market it is operating in. If the investing VC firm does not seem genuinely excited by and appreciative of the business idea, it is a red flag for startups. Entrepreneurs should try to look for investors who are interested in their vision and not just the potential monetary dividends that they might reap later.

Commitment A VC firm’s commitment is reflected in their helpfulness and availability – no matter how small or big the startup. During the initial phases of their operations, all startups have to offer is brains and time. VCs must be mindful of this fact while providing mentorship and support. If initial interactions reveal a lack of commitment, it is best for entrepreneurs to take a step back and reconsider the choices available.

Location and Specialisation While it may seem like a minor detail, the geographical location of the VC firm makes a big difference to the probability of securing an investment. Regional and local investors tend to feel more invested in, and are also more available to, startups operating within their geographies. The chances of funding success are also better if the firm specialises in the startup’s industry, as it is able to better appreciate and understand the startup’s business model owing to their common industry background.

Connections It is helpful to pick a source for funding which can facilitate greater growth for the startup through industry connections and business opportunities. Be it for talent recruitment, PR or business development, high-caliber VC firms will attract better and more impactful business partners for their investee startups. Superior networking also enables multiple rounds of funding for the start-up.

The author is COO, JustLikeNew.