The things you need to know about a VC (before they invest)

Things to do / things to ask

This is a list that started in an earlier post (VC Value Add — Buyer Beware). I’ve recreated the list here for ease. I will continue to add to it over time. Please do suggest additions and/or make comments.

Things to do…

• Go for a meal together
• Drink wine together (if that’s your thing)
• Get your partner to meet them (and yes, I mean your life partner — if you have one) — our partners know us better than anyone and will likely have good instincts on who we can or can’t work with
• Get lots of your team to meet them (and listen to their feedback)
• Take references from founders that have worked with them before (not just the references the VC provides directly; get indirect references and try specifically to find founders where the company didn’t go according to plan — how did the VC behave when times were tough?)
• Meet all the partners in the VC firm (it’s easy to forget but it’s the firm that’s investing not the individual. If the individual leaves, the firm will still be a shareholder in your company and will still hold a board seat)
• Read their investment paper (if they’re willing to give it to you. Some of it might be sensitive relative to team members etc, ask for the rest of it. Do they ‘get’ the opportunity in the same way that you do? Are they excited for the same reasons? What are they expecting to happen? Do they see the same risks that you do?)
• Read their previous blog posts and twitter feed. Listen to podcasts and video interviews. (VC’s generally leave a trail of information everywhere they go. Use this to help you form an opinion. Do you agree with their thoughts and comments?)

Things to ask…

• How long have they been a VC? How many investments have they led personally? How many boards have they been on? (Don’t just assume this. Be explicit in finding out their level of experience)
• When was the firm established? Which fund are they investing from? How much capital do they have? Who are their investors? (again, don’t just assume, find out as much as you can about the firm)
• Where are they in their fund cycle? When will they be raising their next fund? (there’s lots to consider here — for example, if the fund is at the end of its investment period it might create a shorter time horizon for new investments)
• How do they allocate follow-on capital? (all other things being equal, you probably want your VC to be able to invest pro rata in future rounds of funding. Is this part of their strategy? Do they have enough capital reserved to do this?)
• What level of return are they expecting from you? (if you’re in this with the single aim of creating a multi-billion dollar company and the investors would be happy with a 3x return on their money, then you’re unlikely to be aligned on risk and exit timing)
• How many other investments do they make per year? (how important are you going to be to the fund?)
• How many other board seats do they have? (Are they stretched too thin? Or not thin enough?)
• What does their perfect board meeting look like? (do you agree?)
• What is their biggest VC success / failure? (is your VC a midas guru, a rising star or an underdog? Do you care?)
• What’s the most difficult situation they’ve been in as an investor, or the most difficult decision they’ve had to make? (learn how they handled it)
• How long have they been with their firm?
• How long do they intend to be with their firm? (they’re probably not going to tell you if they’re planning to leave their firm, but you can probably still gauge some level of risk on this subject)
• Do they think you need a Chairperson for your board? (do you agree?)
• What senior role are they expecting you to hire next? (do you agree)
• How will they want to communicate with you (email, calls, Whatsapp, in-person? How frequently? Does this work for you?)
• Who else in the firm will you likely be communicating with regularly?

I will continue to add to this list over time. Please feel free to suggest additions and/or make comments.