How To Select  The Right Venture Capital Fund

A Venture Capital funding for your business binds you and the VC for 5 to 10 years. During this period you will be managing the business to meet the milestones and commitments you have made to them. Every business enterprise faces numerous hurdles and tough situations during its lifecycle, before finally becoming successful. It is important to ensure that your VC partner is able to support you through the entire period when the business in developing. Once a Venture Capital relationship is legally formed, it is not easy to dissolve. Therefore it is wise to spend time to ensure that the VC is right for you.

The first step is to shortlist the  possible candidates who are likely to invest in your company. You have to define your investment preferences and then make a list of those VCs whose preferences match yours. VCs do not invest in every opportunity that comes their way. They target   their investments :

  • In Industries they understand,
  • At stages of investments which approximate to the risk they can take. The seed and early stage investments have most risk while later stage investments have less risk.
  • In geographical areas where concentration of resources or where monitoring of their  investments is easier.
  • According to the minimum and maximum amount they would like to invest.

Having made a list of VCs who are could possibly invest in your company, the second step is to evaluate them on these criteria :

  • Is the VC specialist in your industry? Does he have the, experience and the contacts in your industry as well as of how your industry works.? Apart from putting in money in your business, how else can he add value to your business?
  • What is the corpus of their fund and would multiple rounds of funding be available for your business, if required ? Delve into their history and ensure that they actually provide additional rounds of funding to the other ventures they invested in.
  • Look for the big winners in the VCs "stable" and how the VC help them to succeed.
  • Are the companies the VC invested in are recommending the VC to you and the other ventures seeking investments?
  • What is your chemistry with the VCs representative who is going to monitor their investment in your business? Can you develop a relationship with the firm which will result in added-value to your business?
  • What are the terms of the investment? You will have to consider the valuation being put on your business, the equity % being asked for, and other terms and agreements like service contracts, warranties, caveats on day to day working etc to decide whether the terms of the deal are attractive.

If the answers to the above are positive or favourable then you have found your VC investor. Essentially, go for a Venture Capital firm that will maximize the probability of success for your company, support you by being your partner in a real sense, and add value by its presence and participation.