| How to Find a Venture Capital Firm That Will Really Work For You |
| |
| February 13, 2006 | Small Biz Resource |
| |
Go to CMP Media's Small Biz Resource
By Eileen Colkin Cuneo
You’ve got the idea. You’ve formed a management team. You’ve prototyped a product. It’s time to find a venture capitalist to fund your entrepreneurial dream.
But beware: you’re not alone.
“We get a minimum of 25 unsolicited business plans a day in each of our four offices,” says Eric Hjerpe, a partner at Atlas Ventures, a venture capital firm. VCs are busy people, and those unsolicited propositions can easily be skimmed and dismissed. “The trick is finding the right path in,” says Hjerpe.
Start your fundraising efforts by doing a little research first to target the right investors in the first place, says Scott Irwin, general partner at VC firm El Dorado Ventures. “Talk to other people in the industry and trusted advisors.” They can provide strong references to the right kind of VC firms for your business type, saving you time and increasing your odds of pitching to an investor who will back your business.
And let history be your guide. Look for specific partners at various firms that have invested in similar businesses and ideally have made money in those areas before, suggests Hjerpe. “Most VC firm Web sites have profiles of partners that highlight the successes of the deals they’ve done, what boards they sit on, and successful exits,” he says. “Then you can send your proposal to a partner that is already positively inclined to a space. Proposing a business-to-consumer Web site to a VC who only does storage software deals will yield a low success rate.”
Another approach is to find companies in your space that have been successful and work backwards – using the Internet – to find their initial investors who likely made money on the deal.
Once you’ve narrowed down your targets, a credible introduction will get you more attention than an uninvited E-mail proposal, says Hjerpe. Social networks and local executive forums are a good place to meet established business leaders who can make a connection to a VC-acquaintance on your behalf. Alumni groups also are a good resource – as Hjerpe admits he’ll pay attention to pitches from fellow alums of MIT or Brown University.
Another effective strategy is to track down your desired VC at public engagements. “Know who your targets are, find out where they’re going to be and have a reason to get into a conversation with them,” Hjerpe says. “It’s not that hard to show up at an event and corner them after they've given a presentation.”
Of course, getting in the door doesn’t mean you’ve found the right firm for your business. Ask for references from previous companies the firm invested in, says El Dorado’s Irwin. And if you’re pooling investments from more than one firm, make sure the firms are compatible and share a similar point of view on the business opportunity. “You don’t want firms that differentiate greatly in fund size or investment strategy,” Irwin says. Otherwise, you could be caught in the middle of the firms’ conflict.
Irwin says entrepreneurs should be in agreement with the investors about the timing and size of the investment, and should confirm that the firm will be willing and able to invest more as the business grows. “If your business plan anticipates the investor won’t exit for six years,” he says, “make sure the investors don’t have a different time horizon in mind or you could have problems."
Finally, don’t underestimate the power of personal chemistry. “Entrepreneurs should know that who they raise money with is their own decision and picking the right investors is critical,” says Irwin, who recommends treating the investor selection the same as they would hiring a management team member. “They should spend plenty of time with the individual who is making the investment and make sure it’s a fit both personally and professionally – because it’s a relationship you’ll have for at least five years.”
|
|
