You know that "money is a good servant but a bad master".

Finding suitable venture capital investors is one of the biggest challenges for the entrepreneur in a company's early stage. Not all money is the same. "You can divorce your spouse, but you can't divorce your investor", say venture capitalists. So, be very selective and try to find investors who would add not only money but also great value to your venture.

 

 

Differences

Business Angels

VC Firms

Personal

Entrepreneurs

Money managers

Money invested

Own money

Fund provider's money

Firms funded

Small, early stage

Medium, later stage

Due diligence done

Minimal

Extensive

Location of investment

Of concern

Of lesser concern

Contract used

Simple

Comprehensive

Monitoring after investment

Active, hands-on

Strategic

Involvement in management

Important

Of lesser concern

Exiting the firm

Of lesser concern

Highly important

Rate of return

Of lesser concern

Highly important

 

Check out Business Angel Investors     Check out VC Firms     Check out Banks

 

 

Checking out Business Angel Investors

Adapted from "Angel Investing", by Osnabrugge, M.V., and Robinson, R.J.

Due diligence is a two-way street. Although entrepreneurs may be hesitant to check out potential business angel investors for fear of possibly turning away committed funds, it is imperative that they learn as much as possible about the person to whom they are selling part of their company. Every entrepreneurs should ask:

Are the investor's motivations in line with what we can realistically offer?

Is the investor's personality compatible with mine?

Does the investor share the same goals I have?

What other firms has the investor funded in the past? How did they turn out?

How active was the investor in those firms?

Did the investor make constructive contributions?

What do entrepreneurs in those firms (especially those that failed) say about the investor?

Did the investor stick with the firms in times of trouble?

What industries does the investor have experience in?

Does the investor understand this firm's industry sector? Can he or she contribute to this area?

How helpful will the investor be in trying to obtain future rounds of financing?

Does this investor have the expertise, contacts, and reputation to attract other potential investors and build the firm?

 

 

How an Entrepreneur Must Evaluate the Benefits that a Particular Venture Firm Can Provide the Company

By PricewaterhouseCoopers LLP

Do the venture capitalists have experience with similar types of investments?

Are there competing companies in their portfolio?

Are the personalities on both sides of the table compatible?

Does the firm have strong syndication ties with other venture firms for additional rounds of financing?

Can they help provide contacts for distribution channels and executive search?

 

 

What Should Emerging Technology Companies Look for in a Bank?

By Silicon Valley Bank

Do they understand technology?

Do they understand enterprise value?

Do they understand the different life cycles of technology companies?

Are they consistent in good times and tough times?

How long have they done this and what is their track record?

How big is their client base and are they national in focus?

Do they bring more than money to the table?

Can they help connect us with equity sources?

Can they introduce us the right service providers?