What to Look For In A Venture Capital Firm
When looking to raise funding, there are many factors you need to consider before choosing a venture capitalist partner. Many great startups have been thrown off course by choosing an investor for the money and not for the other assets they bring to the table. While capital is important, it’s only a small part of startup success.
That being said, here’s a list of things you need to consider before choosing an investor (or group of investors):
Knowledge of Industry
Almost all of venture capital firms have their area of expertise. Usually it’s a certain industry or group of industries. For example, at Tandon Group we specialize in the EMS, IT, healthcare, defense, and consumer industries. We feel that we have the highest chance of success when we stick to our domain of expertise. Other venture capitalist firms might specialize in industries like fintech, cryptocurrency, or any other number of specialized industries. While knowledge of the industry is extremely important, it’s only the starting point for finding your ideal venture capital partner.
Do you have the same values, ethics and morals as the venture capitalist you’re speaking with? If there’s a clash of fundamental beliefs between you and your funding partner(s) there will inevitably be larger problems down the road. Decisions can become extremely difficult when you put yourself in the shoes of your investor. There is a tendency for all investors to be more shortsighted than company founders. Short-term focus on ROI can sometimes mean the death of a promising startup. If Facebook had started charging customers for access or started advertising sooner, we might not be talking about them as a global superpower like we do today.
It’s a common saying that success breeds success. That being said, how much success has the venture capital firm you’re considering seen in the past? Some firms prefer a widespread approach, investing in many companies, hoping for a few big successes. Other venture capitalist companies take a more exclusive approach, working hand-in-hand with each company they invest in. Either way, these firms are going to have past successes and failures. It’s in your best interest to know about them. At Tandon group we’re proud to say we have a large portfolio of successful investments and one of the largest mergers and acquisition deals in Indian consumer internet history.
Over the last few weeks there’s been widespread stories about sexual harassment and gender inequality in the venture capitalist community. While it’s disheartening to see this kind of behavior, it’s also a part of human nature. There are always going to the unethical and untrustworthy people conducting business in the world. It’s important that you do background research about each individual that manages a venture capitalist firm. Do they have a history of unprofessional behavior? Taking the time to do this could save your startup from an embarrassing scandal or expensive legal trouble in the future.
Emotional intelligence is harder to quantify than other factors on this list but it’s just as important as the rest. You should do your best to find out how a particular venture capitalist firm handled emotional situations in the past. Whether it’s replacing executives, firing ineffective employees, or any other event that causes high tension, a venture capitalist’s ability to communicate and understand the situation is paramount. The most effective course of action for a startup is to talk with previous company founders and get their opinion on the firm’s emotional intelligence.
Most startups don’t raise capital just one time. Partnering with a venture capital firm that can introduce you to future funding options is something you want to think about from the outset. Look into their funding history and see what their past funding rounds have been like. How were they structured? Who did they bring on-board for additional capital? Semi-celebrity venture capitalist might have more overall connections but a lesser-known investor might have more relevant connections in your industry. A great question to ask while meeting with investors is, “who do you think you know that can help us grow this company faster?”
Knowing how many companies a firm is currently invested in can give you a better idea of how much time they’re going to be able to devote to you and your business. Ask the venture capitalist directly how much time they anticipate devoting to your startup each month. You don’t want to get into a situation where you have either – an overbearing investor or an investor who is not involved whatsoever in the operations of the company. Most startups need to find a “happy medium” where they get the advice they need but also have the freedom to operate the business in the same manner that brought them success up until now.
It’s common practice for venture capital firms to set up funds that are specifically used for different geographical areas across the globe. Make sure you do your research to ensure you’re talking to someone who’s interested in investing where your startup is headquartered. This isn’t always a deal-breaker but many investors feel more comfortable when they invest in companies that operate where they’re familiar. As an example, the Tandon group has offices in San Jose, California and Mumbai, India. While we’re open to investment pitches from all across the globe, we put special precedent on companies that are headquartered in either of our locations. It gives us the ability to provide guidance and work directly with company founders.
If you’re a startup founder looking for funding, the Tandon group is always open to hearing promising investment opportunities. If you work in any of our areas of expertise (mentioned at the beginning of this article) you can contact us to discuss potential investments.
If you’re already apart of a successful startup and you’re looking to expand your business offerings to the Indian market we’re also interested in speaking with you. We have 38+ years of business expertise in the Indian market and are perhaps the best company to partner with if you’re looking to grow there.