Alan Patricof, an American investor and one of the early pioneers of the venture capital and private equity industries, once stated: “Every venture capitalist says at some point: ‘I wish I could run this company myself’ – to be the entrepreneur instead of the investor.”
But before a venture capitalist wishes to be the entrepreneur of your company, there is one important step to do in the first place: Identify the right venture capitalists (VCs) for your company!
Let’s assume your venture is in the right situation to seek institutional VC funding. To identify a suitable VC, you have to make up your mind about five main selection criteria.
Name and Reputation of the Venture Capitalists
Venture Capitalists have different reputations, which are i.e. based on experience, expertise and past performance of the VC. The name and reputation of a VC often reflect on young companies and influence future financing rounds. High-reputation affiliates usually create signaling and substantive value to your venture. Be aware of the reputation of your potential partners, it will be associated with your company!
Development Phase of the Company
Different VCs finance different development phases of young companies. Depending on whether your venture is in the seed, start-up or expansion phase, you have to find the right investors, which are typically financing companies of your state.
Industry Sector of Firm and Venture Capitalists
Venture Capitalists sometimes have a specialization on a certain industry sector. Spectrum industry (total assets: $5.7 billion) i.e. focuses on information economy, whereas Greylock Partners (total assets: $2.0 billion) places the emphasis on medical devices. You should mainly search for VCs which are focusing on your company’s sector to increase the chances that you will receive funding.
Required Financing Volume
Different VCs invest different amounts. You have to determine for yourself which amount you are seeking for and finally aiming for a VC who is willing to pay the amount you demand.
Location of the Venture Capitalists
Finally, you should target VCs that are geographically close to your company’s offices. The rule of thumb is that a company should be reached within two hours. If this requirement is not fulfilled, the chances of funding are decreasing dramatically.
After identifying and selecting the right VC for your company, you have to approach VCs properly, including giving the pitch, which might change your life forever! Do you want to learn how to pitch? And do you want to know how to finally close the deal? Then enroll today and join Understanding Venture Capitalists: How to Get Money for your Start Up, starting February 13, 2017!