How to Choose the Right Partners in a Venture Capital Fund

When you are searching for the right venture capital fund, there are a lot of factors that can go into deciding which fund to choose. Naturally, most first-time founders are dying to get any investor on board, let alone vetting multiple options. They feel like they can’t be too picky or aggressive. But that is not necessarily the case.

Even if it’s not a particularly competitive situation, the founder must remember that it’s not just the investor interviewing them—but that they’re interviewing the investor as well.

In order to feel confident that you are choosing the right partner, you'll need to have the confidence to ask questions and get to know them on a personal level. You will need to recognize your own personal business style and what you will need from them. And lastly, you have to feel empowered by the VC you are working with so you both can reap the benefits of a successful endeavor. Let’s dive a little deeper into each of these points.

How can you know if your investor is a person of real, genuine character? Simple. By spending time getting to know them. You can have lunch or Zoom. You can swap stories. You can ask for references. You do your research by getting to know them as a person and seeing how you get along together. The quality of the person you’re going to be working with is important. After all, it is highly likely that they could be sitting on your board for years to come!

It’s also a good idea to do your research on the fund itself. Prepare and ask questions based on your research. It shows investors that you’re engaged and serious about the process. Yes, it can be easier to grill your VC with questions when you’re in a competitive position with your fundraising. But no matter what your situation, you can still benefit from the way you position yourself in your communications with VCs.

Have confidence and know exactly what you want to find out during this getting to know you stage. When you ask, “How big is your fund? How much dry powder do you have left in the fund? What’s your thesis?” it sends a powerful message to the investors: this person knows what they are doing.

When you confidently ask the VC your questions, pay attention to how the investors respond—not just in terms of the answers but the way they respond. You have to possess a real self-awareness about who you work well with and who you don’t. For example, some people really can’t handle the fist-pounding type; they just know they won’t mesh well with an investor who’s particularly aggressive. Then again, some founders are the opposite: they know they’re going to need a hands-on investor who will give them that extra push. 

There’s no right or wrong here. It’s all about having self-awareness around your own working style and what dynamic suits you best in a founder/investor relationship. Aggressive can be okay but watch out for those early-stage VCs who are very nitpicky about the terms in the term sheet and all the granular details of your business. If you see that behavior in a prospective investor, it should raise an eyebrow—no matter what your work style may be—because it’s a predictor of how they’re going to act as a board member and investor.

A good investor will want to empower the founder, not control them. If your VC is out for power, it can create the wrong dynamic. The investor should want to embolden the founder. Yes, they should express their opinion if they feel strongly about something. But they should never force anything on the entrepreneur. Especially if you’re an early-stage company and you’ve just got a basic product, and now an investor is trying to rigorously evaluate your business and grill you on all the details, my advice would be to get out ASAP! There’s just no reason for them to perform that kind of due diligence around an early-stage company—and if they’re already so difficult to work with, you know it’s only going to get worse! 

Similarly, a good investor also won’t tranche their investment in early-stage financings over many payments. When a pre-seed or seed deal is tied to future KPIs, that’s a big red flag because it can misalign interests (the investor may be rooting against you to meet the KPIs to have more leverage in the relationship). If you’re like many startups, you’re still figuring out what you want to be when you grow up. If your investors determine a narrow path for you, you don’t have the flexibility to pivot into new opportunities that you come across.

If you find yourself in a position where you don’t agree with something an existing investor wants, the investor really has to just let go and accept. Otherwise, it’s going to create unnecessary conflict. This is common sense but it takes confidence to stand your ground. It’s the same philosophy I bring to hiring: I want to give my people the autonomy and freedom to make their own decisions rather than telling them what to do.

I know that I can’t work well with an investor who tries to control or micromanage because I know myself. And you need to know yourself, too.

By the time you have asked all your questions, assessed their character, looked into their other holdings, and are getting good vibes from the VC you should be ready to make the deal. Determining the character of the VC can be very simple but it takes due diligence and the wherewithal to stand by your findings. You’ll be happy that you did.

Because no matter the relationship or business potential, you’ll find yourself going through turbulent times with these investors. The going can and will get rough, and for better or worse, you’ll be in the thick together and you wanna know you have the right VC by your side.