Question: What is one way you vet potential investors and venture capital firms?
View Their Profile on TheFunded.com
"TheFunded.com is a great resource for learning about investors and venture capital firms. The website is like Yelp for financing. On the site, entrepreneurs can read about other founders' experiences with investment firms, which can be a great tool for tailoring your startup pitch or considering whether you want to pursue a particular fund for your company."
Take it Step by Step
"In online capital raises, some entrepreneurs feel the need to rush things -- but they shouldn't. My company encourages entrepreneurs to move step by step through the "get to know you" process at a pace they're comfortable with, rather than try to push things ahead too quickly."
Ask About Their Five-Year Plan
"Often entrepreneurs are frothing at the mouth to receive an investment from a VC firm. However, understanding the long-term goals of each of the company and the VC firm ensures a healthy working relationship. Asking what their five-year plan would be if they were in control of a client I represent helps me gauge their knowledge of my business and ability to move the needle forward."
Make Sure They Share Your Vision
"I always want to know if the potential investor is going to bring more than capital to the table, and I want to understand if we share the same vision. There are a number of venture funds out there that will help you raise funds. But only a select few will really understand what you are trying to accomplish with your business."
Ascertain Their Sophistication
"While VC firms are by definition sophisticated investors, not all angel investors understand the space. While those who are members of angel investment networks or have previous startup experience will know the risks inherent in startup investment and the amount of time an investment will be illiquid, people without such experience may have unrealistic expectations that need to be managed."
Ask to Connect With the Founder of One of Their Portfolio Companies
"I learned a lot about the background and value-add of potential investors through the founders they had previously invested in. The founders helped set my expectation for how often I would be communicating with the investor. In addition, when these investors put money into my startup, I immediately knew how to maximize their skillset and network."
Get to Know Them
"Get to know your investors on a personal level, outside of a business setting. Knowing how a person acts and behaves when they are not at work says a lot about their personality. When building a business, it’s important to take investments from people who are knowledgeable and can give you council. Never take money just for the sake of taking money."
Reference, Reference, Reference!
"Just like with employees, too many entrepreneurs fail to properly reference investors and VCs. These are people who you are going to be working closely with for years ahead -- especially if they're joining your board. These are people who will have a major impact on some of the most important decisions of your life. Speak with the entrepreneurs they've worked with in the good times AND the bad."
Look at Their Interest, Capacity and Network
"Investors must be excited about the vision of the company, must have capacity to do a follow-up round if needed and should have great network and rapport in the ecosystem to help their investment work harder."
Have In Depth Discussions
"I always have an in depth discussion with the decision maker(s), not only about the financial terms but about their business philosophy and motivations. This is, of course, after they have been vetted in more basic ways. I like to make sure we're on the same page regarding any projects so that misunderstandings don't occur in the future."
Ask Their Exited Entrepreneurs
"Search AngelList or Crunchbase to find startups that have had a particular investor or VC partner on their board for years and where the entrepreneur has since exited the company. These are the people who will have the most accurate and honest feedback about the investors and are usually very willing to help new entrepreneurs following their recent path."
Look for ERE
"Experience, reputation and an extensive high-quality network are the chief yardsticks. You want investors with experience working with businesses at your stage of development, who understand the challenges unique to your situation, and who can help you get a foothold in the startup ecosystem. Reputation matters. We do our homework and make sure we’re familiar with track records and results."