Getting a venture capitalist to back your startup is difficult. You'll need experience to convince them you're worth it, meaning that you'll likely want to start with a few other funding options. So, once you finally land your first VC, you'll be tempted to immediately sign up for their funds. But just because they're the first VC doesn't mean they're the best.
Alexander Rupert of EarlyBird VC recently posted an analysis advising VCs about the potential mistakes they might make in their first year at the job. With a few tweaks, those lessons can serve as pointers to anyone who might find themselves sitting across from a newbie venture capitalist.
1: Avoid Group Thinkers
VCs can be tempted to jump on a trend simply because it's a trend. That might seem great at first, if your topic is trending. Take augmented reality games, for instance. They'll be hot for the next six months, thanks to Pokemon Go. But when these VCs don't see similar results from your startup, they won't be understanding. Think you can boost your value by $20M and become more popular than Sony, like Nintendo did? Yeahhh no.
2: Can They See Past Your Pitch Deck?
Rupert, to newbie VCs:
“The bigger a problem or project is, the more complex its solution might be, sometimes resulting in confusing pitch decks. Go for the big problems, there are no easy problems to be solved anymore. Dig deeper in case the problem is big enough. […] A pitch deck is nothing but a first impression, a piece of paper. Remember, you are looking for great companies, not pitch decks.”
Check to see if the VC is willing and able to ask questions beyond just the facts in your pitch deck. Although, make sure that your deck is coherent, too. That can't hurt.
3: Are They Focused on Your Specific Industry?
VCs can't add value if they don't know what they're talking about, and the broader an industry they try to throw that capital around within, the less they'll know. Here, Rupert extends advice to the founders:
“As a founder, you should challenge the VC (do your due diligence as well!) on your competitors and find out whether they are well enough connected within your industry. Be very clear about your expectations and support required from the beginning of the conversations.”
4: Are They Committed Beyond Mere Investment?
Will your first VC “work his ass off to make his portfolios become a success story”?
5: Are They Empathetic?
Venture capitalists are investors and supporters. In order to be supporting, they'll need to be able to see things from your perspective. They don't need to agree with you, of course, but even surface-level niceties like arriving at meetings on time will make a difference.