How to Screen Venture Capitalists


Previously, I shared my definitive checklist for startup success, which included the things you needed to accomplish before approaching venture investors in order to increase the odds that they will be interested in funding your business.  In this lesson, I am going to provide the inverse; a definitive list of things a venture investor should offer you, before you take money from them.


venture capital in new york


About the Firm

  • What is the firm’s track record of success?  Have them list their best performers.
  • Does the firm have a “brand name?”  Some startups are perceived as being better investment/startup opportunities, if a big name firm is involved.  This may help you attract other investors and business partners in the future.  But, there are plenty of great lesser-known investors.
  • How big is their current fund overall?  More specifically, how much is still available for future investment?  You want a firm with deep pockets, for this round and the next.
  • Is this their first fund or their fifth fund?  The more funds they have raised over the years, the more successful their investments have been, attracting new capital over time.
  • What business contacts can the firm introduce to you?  Their Rolodex is often more important than their capital, to help you open doors to business partners more quickly.

About the Team

  • What is the specific partner’s track record of success?  It is less about the firm, and more about the person you will be working with day-to-day.
  • Does the partner have specific business experience, or only financial experience?  It is always better to have the input of another successful entrepreneur who has actually been in the trenches.
  • Ask to speak to the CEOs of their portfolio companies.  After the deal closes, nobody will give you a better sense of the value provided and personality of the partner than these CEOs.
  • Who from their firm will be sitting on your board of directors?  Quite often, the senior partner who closes the deal is not the more-junior person who will be filling their board seat.
  • What experience does the partner have in your industry?  Not all startups are created equal.  Look for domain expertise in your industry and desired go-to-market strategies.
  • What is their personality and style?  You will be spending the next 5 years with this team, make sure you can get along with them (in good and bad times).

About the Deal

  • Are the investment terms, valuation and deal structure fair and in line with market levels?  You can benchmark multiple VC offers against each other, and research investment trends for a business of your size.  Only work with firms that you feel are treating you fairly.  A good startup lawyer can help here.

I have said this before, not all cash is the same shade of green.  Choose your investors wisely to increase your odds of long-term growth and business success.

Reprinted by permission.

About the author: George Deeb

George Deeb is a managing partner at Red Rocket Ventures, a Chicago-based startup consulting and fundraising firm with expertise in advising Internet-related businesses. More of George’s startup lessons can be read at “101 Startup Lessons — An Entrepreneur’s Handbook.”

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