How to Choose the Right VC

Innovate Finance Team, 23/06/2015

Entrepreneurs go to VCs for money. But what if the tables were turned and investors had to pitch to entrepreneurs? Innovate Finance’s event ‘Money Talks — VCs Take the Stage’ did exactly this. We put VCs in the hot seat and asked them to pitch before a ‘dragon’s den’-style panel of FinTech startups. So what exactly were the ‘dragons’ looking for? And what did the startups reveal was their criteria for choosing an investor?

One of the most important tasks for every startup is raising money. When choosing a VC, it is always tempting to go for the first or biggest pile of cash that comes along. However, keep in mind that your VC will likely be sitting on your board and impacting the future direction of your company so finding the perfect fit can, in the long run, be more important than the terms sheet.

Interestingly, parallels can be drawn between the criteria for choosing your investors and the investors’ decision for investing companies.

Here are a few points and questions that our ‘dragons’ put forward to help you identify the best VC for your startup:

Network and Access

Most often companies are looking for investment with a view to expanding and scaling their business. You need to ask how can your new VC help you to achieve this. What network can that VC bring to bear? Can they introduce you to potential clients? Which markets are you looking to move into and can that VC help you to do so? Infocomm Investments, for instance, focuses on helping startups expand into SouthEast Asia. These sorts of things are important to consider when looking for funding.

2. Great Track Record

What is their track record? How many unicorns have they funded? Louise Beaumont, Head of Public Affairs and Marketing at GLI Finance, highlighted that a key factor when assessing funds is understanding how good the fund is at helping startups grow and helping them to exit. Most VC funds feature their investments on their websites, do your research and look into how other companies have developed after receiving this VC’s investment.

 

3. Understanding of Your Sector and Business

Do they understand your business model and the sector you are operating in? As noted Mariano Belinky, Managing Partner at Santander InnoVentures, only if the VC has a good understanding of your business will it be able to guide you in the right direction. As a side note, this was an interesting point of discussion during our event, if VCs only invest in sectors they understand, does this mean they are determining how the FinTech market will develop?

4. Empathy

Can they put themselves in your shoes? Do they understand what you are going through as an entrepreneur? ‘Empathy is the best thing you can expect from a VC,’ stated Alain Falys, Co-Founder and CEO of Yoyo Wallet. As mentioned at the beginning, very often VCs will place someone on your company board, will this individual recognise the challenges that come with running a business and appreciate that the business plan very often does not play out in real life.

5. Diversity

How diverse are the partners at the firm? How many of them are women? Russ Shaw, founder of Tech London Advocates, questioned the VCs on whether they were doing anything to support female entrepreneurs. As the number of female entrepreneurs seeking funding increases, it is highly likely that these questions will be asked more and more often.

Asking these sorts of question prior to approaching VCs for investment is critical as it will ultimately help you engage with a VC firm that will not only be able to offer monetary support, but also the motivation and future opportunities for your startup.

Got any other tips for entrepreneurs looking to scale-up their business? Got an idea of who the perfect VC is for your startup? Let us know in comments or tweet @InnFin using the #IFWEEK hashtag.