Wednesday, June 13, 2007

All Venture Money Is Not Equal

If you’ve ever been CEO of a venture backed company you know that while all money is green it is not all equally valuable. VCs, like human beings, come in all styles and when you are raising money it’s important to keep in mind some key tenets when selecting investors.

1. Pick someone who has the same vision and values as you. You are (hopefully) in your venture because you believe you can change the world (if you are doing it to get rich stop now because you don’t get rich in the startup world by trying to get rich, you get rich by building something) and it’s very important your investors want you to change the world too. There are many tough moments of truth when building a company, and none more so than when you get an offer for your company before you think you are ready – before you have built the strategy and value that you believe is possible. That moment is when you find out whether your investor truly shared your vision on how to change the world or was just telling you he did.


2. Pick a partner who can do heavy lifting for you when you need it. Great venture partnerships have a rich, deep network to help you recruit, develop partnerships, manage sticky HR issues and even find office space.

3. Avoid the money based VC who’s motivated by running a portfolio. Find someone who walks the talk and builds great companies. If you can, find a VC who has been doing it for more than 10 years and has a great track record – and talk to their CEOs – or find one who’s been a CEO, built a good company and taken it public. When you work with someone from a leading firm like Benchmark, Oak, Sutter Hill, Sequoia or Mayfield and they’ve done it for years you get access to a level of wisdom and advice that you simply won’t get from the new crop.

4. Pick someone you enjoy being with. Most companies take many years to mature and if you are going to meet with your board a couple of times a quarter for 5 years it certainly makes the journey more fun if you enjoy interacting with them.

And I have many more lessons learned… but of course, in the end, you do need to get funded and you may need to take what you can get, but if you have the chance to be selective, the right investor is more important than the highest valuation because you’ll build a better company and so make more money in the long run with the right partner.

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