It’s never been a better time to be a startup founder. Massive liquidity in the financial system, huge returns from the stock market and a multitude of other circumstances have resulted in a deluge of capital coming into venture.
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New records are being set every month on round sizes, valuations, number of unicorns and the speed at which funding rounds are closing.
Competition among venture capitalists has never been higher, and institutional money is demanding exposure to tech startups at increasingly early stages. All of these factors have combined to give founders an enormous amount of leverage when it comes to cutting deals.
As such, founders need to be extremely selective when choosing which VCs to work with and how much capital to take. There are more new VCs launched every day with the sole purpose of getting exposure to companies—not necessarily being involved in the actual creation and execution of the startups themselves.
When meeting with and sorting through the multitude of investors available, there are a few key things that founders should look out for.
Know what type of VC partner you want
Sometimes it’s better to have an investor who doesn’t check in and has no intention of getting involved in the business. Other times it’s crucial to have investors who are willing to roll up their sleeves, open doors and get in the trenches with you in order to get your startup off the ground.
One great way of measuring this is by asking how many deals they do per year and how many boards they sit on. If they are doing more than 12 or so deals per year, then it’s probably going to be extremely difficult for them to be involved in every one—especially over time.
If they’re only doing a few deals a year and sitting on a limited number of boards, then they probably have the right amount of time to dedicate to each investment. Knowing what you want is essential, so spend some time thinking about it and getting advice from other founders.
Be protective of your time
One of the most consistent pieces of feedback we hear from founders is that they hate when VCs waste their time. This spans the gamut from being nonchalantly late to meetings to slowing down a funding round with ceaseless negotiations and tedious requirements that oftentimes result in them dropping from the round after delaying the process for everyone. When selecting a VC partner, whether you want them to be highly involved or hands off, their respect of your time is a core, essential value.
Don’t get caught wasting time with flakey, noncommittal VCs when the market is so heavily in your favor.
Look for a connection and compatible working style
The last, and arguably most important, thing is the real human connection and chemistry you share with this person. You are going to be working together for a very long time (hopefully), so being able to communicate openly and enjoy each other’s perspectives can make the difference between a good and a bad investor/founder relationship.
There will be times when you have to give them bad news, so knowing that you’ll be comfortable with them even when things get tough is essential.
Working styles are also an important part of that equation. Will you be getting 3 a.m. calls because they want to talk about market expansion? Understanding how and how often they want to communicate is a fundamental element of working together and is an often overlooked detail.
Founders can avoid some real pitfalls by choosing to work with people who match their style.
And finally, be selective
With so much capital in the system and venture capitalists looking to deploy it, founders should take advantage of their leverage not just by negotiating fantastic deals, but by being highly selective about which people and funds they choose to take capital from.
The right partners make all the difference in both the experiences founders have building their ideas into reality and the ultimate successes or failures of their visions.
Marc Schröder is the managing partner and co-founder of Maschmeyer Group Ventures (MGV), and is focused on working with world-class tech entrepreneurs and establishing the MGV legacy. Before co-founding MGV, Schröder served as the head of global sales at the Maschmeyer Group and was an investor at Seed + Speed Ventures. Originally from the Netherlands, Marc grew up in South Africa and graduated with a law degree from Bertolt-Brecht University.
Illustration: Li-Anne Dias
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