How to Pick the Right Venture Capitalist (VC) for Your Startup

If you're looking for outside capital to finance your business or tech start up, you might be considering venture capital (VC). We've written a guide to the VC fundraising process, and in our experience, picking the right outfit is one of the most important aspects. Many factors can contribute to this, ranging from cultural fit and interpersonal dynamics to sector expertise. It's a good idea to do your research, start discussions, and perfect your pitch before you launch your 'official' fundraising endeavors. If you're at the point where a VC is a good fit for your business, you probably have some experience pitching to investors and some idea of what kind of VC you're seeking. The key to finding the perfect match is thorough research and active networking.

How do you get started? Our top tips to help you find the right VC are below.

Seek out your peers who are familiar with certain VCs

A great place to start your search is by focusing on the peers of yours who have won venture capital investment. By combining the VCs they recommend with your desktop research, you'll get a head start by identifying those that are most likely to fit your needs. Consider contacting companies who are a little ahead of you in the fundraising game, as well as your immediate peers. It's likely they'll have current information about VCs that are actively looking for investment, as well as a list of potential VCs so you don't need to spend time creating your own.

Look out for VCs with industry experience in the same sector

When you're doing your research, a simple way to narrow down your shortlist is to look for firms who have experience in similar industries. VCs, like you, are in business to make money, and they are looking for that magical investment that will yield spectacular returns. As a result, they increasingly target specialized niches, be they financial or sector-specific. By so doing, they don't waste time investing in industries of which they have no particular experience and to which they can't contribute much except their money. Focus on VCs that operate in your market sector because they will have a better understanding of your pitch and can critically analyze the business proposition, giving you a head start on the competition.

Go with the big names and heavy-hitters with great reputations

When it comes to your next round of funding, choosing the right firm can contribute a lot to your business' credibility. It will be much easier to raise funds in the future with a top-notch VC on board. You will get more money and on better terms. You're most likely to be asked who's already invested by potential new investors. This could be an important part of future pitches. Consider this carefully. Be strategic, find a reputable VC that is sector specific. 

Look for investors who share your goals

To find the right VC, identify your likely end-goals. Consider whether this might be the first in a series of fundraising efforts by reviewing your target's history of continuing to contribute. If you're targeting an IPO, you'll want to narrow your VC list to investors who are interested in this type of exit. If fit and support are crucial to you, you should look for a company that works well with founders and is user-friendly. The reputation of some firms precedes them unfortunately. While some companies are flexible and accommodating when businesses don't meet KPIs or milestones, others are rigid or inflexible. This is the kind of question you should be asking when conversing with peers and attending networking events. Fundraising is not just about finances, but also about people. You need a venture capitalist who can advocate for you. This could be a long-term relationship, so treat it as if it were a marriage. Invest in VCs who are enthusiastic and committed, and you won't go wrong. Finally, consider the way you approach business. What is important to you: autonomy or the support and investment that an experienced VC can provide? In this case, targeting firms that are available to provide advice when you need it can be invaluable.

Attend award events and competitions

Founders often participate in awards events and competitions. Why? These competitions are not just about winning cash prizes, but also about reaching out to hundreds of potential VCs. Additionally, awards events allow you to compare and contrast your pitch with others and gain media exposure. Your pitch may be covered in specialist media, resulting in valuable exposure. Furthermore, you'll get expert feedback on your pitch, so you can spot any gaps that might turn off potential backers. Attend an accelerator event for start ups.

An accelerator is a short-term boot camp that will prepare you for going to market with your pitch and obtaining funding. Accelerators offer the following benefits:

  • You will have a dedicated time and space to work on fundraising outside of your regular business responsibilities. This will give you the breathing space to raise your fundraising game.
  • Some programs offer mentorship, workshops, or practice opportunities for pitching.
  • This will allow you to meet your peers and build a network that can lead to more and better opportunities.
  • The pitch day itself will give you access to VCs who are looking for their next investment.

Exploit your network for warm introductions

You should begin establishing relationships with possible investors even before you think about seeking funding. By doing this, not only will you save time when you're ready to go to market, but you'll also build relationships with investors who are genuinely interested in your business. Make it clear that you are not currently fundraising so people are more inclined to learn about what you're offering. Reach out to your network and ask for warm introductions to as many VCs as possible, even if you don't think they're a good fit. They can still provide you with advice on the fundraising process, and what they're looking for in a potential investment. 

Pick VCs who specialise in your type of business 

The motivations of each type of VC funder differ. They may have a maximum amount they invest or specialize in certain types of businesses or stages of a business' lifecycle. By concentrating your efforts on investors who are funding-ready for your stage of business, you're more likely to get results.

Make sure the money’s right

Regardless of whether you find the right VC for you, you still need to make sure the package they're offering is right for you. Walk away if you do not think the money they offer you will provide you with sufficient headroom to take your business to the next level. In the interim, returning to the VC market will only hurt your business, consume your time, and damage your reputation. Set your financial target early and upfront to increase your chances of success in the long run.