How Does An Entrepreneur Choose A Venture Capitalist To Participate In His/Her Company?

The key to finding the right venture capitalist is to find one with the balls to helping entrepreneurs reach their vision of feasible and timely upside.

First, this is a loaded statement, for it requires a certain amount of transparency of past performance by the VC to be disclosed that is not publicly available. It is essential for an entrepreneur to understand what the portfolio performance of the fund is. Not in the least because poor performance (common in 99.4% of funds) will lead to some knee-jerk reactions by the VC when the shit hits the proverbial fan of entrepreneurialism.

I know of many entrepreneurs whose companies have failed not on their own accord, but because the portfolio picks by the venture firm and timing towards delivering exits to limited partners became the noose around their proverbial necks. In short, you must investigate the merit of money attached to the VC in question.

Secondary, you must get the feeling that despite, or because, of the performance of the VC firm, they understand your trajectory of upside and are capable of providing the majority of the runway towards such upside. Building a cap-table correlated to your financial operating plan will tell you if the VC in question is up to the task.

Third, you must like the people of the venture firm, not just the general partner sponsoring the deal. Interact with them on a personal level and see what they are made of. Financial graduates are generally not the arbiters of groundbreaking innovation that relies on unprecedented foresight. Read how they deal with foresight uncorrelated to hindsight. Test them, thoroughly.

A negotiation of valuation is indicative of the alignment of foresight between entrepreneur and investor. Drive the valuation you believe is realistic, and walk if the value the investor brings is out of line with your independent or alternative propensity to succeed.

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