What to consider before you put a ring on it
Committing to a relationship with a VC is committing to the long-term. In romantic terms, it’s a marriage, not a casual drink or weekend getaway. In fact, venture capital/startup relationships last just as long as most marriages — around 7 or 8 years — and can be just as emotionally taxing.
Entrepreneurs often struggle to feel confident when they are presenting to VCs. Pitching your startup can be as nerve-wracking as waiting at the bar for a blind date, and what VCs want can seem as mysterious as members of the opposite sex. Entrepreneurs are reluctant to ask important questions because they are afraid of scaring the potential partner away, but the answers to those questions could seriously impact the happiness and fruitfulness of your “life” together. Startup life means there are a lot of ups and downs, but the downs don’t mean you should settle for a ‘safe’ VC choice. Everybody deserves somebody. As with significant others, you want someone who sees the unique positives in you, not the generic negatives.
What VCs care most about is how much their investment will be worth, or equity value. This leads to the question facing all entrepreneurs — how do you build equity value? Revenue is a metric (and an important one), but not the metric. Other factors include market leadership, unique IP/capabilities, disruption in a big market, and an A+ technology team. The right “fit” isn’t the same for everyone. What works for one person or startup may not work for another. Here are 5 things to consider before entering the bonds of venture capital funding.
1. Know your value as a partner
As the philosopher Beyonce says, “If you like it, then you should have put a ring on it.” A great start to a marriage or partnership of any kind is when both sides feel they lucked out and are excited about the commitment. Find someone who appreciates the potential of your business and what you have to offer. As a founder, you are giving away your most prized asset — your equity. The VCs are buying a piece of a company that they believe has value. It is important to remember your self-worth and your company’s value before you embark upon a relationship . This is a much more compelling approach than “I hope someone gives me money,” because desperation doesn’t look good on anybody.
It is also important not to have baggage walking into the partnership. Plenty of entrepreneurs play hard to get in the beginning, but as soon as you commit, the games should be over. You don’t want to spend years explaining or justifying yourself. A strong relationship means being honest and appreciative of each other. This also means it is important to be on the same page about terms, so everyone feels they got a fair deal. For example, Carbonite really loved working with us at Menlo Ventures because the investment was fair on both sides and we said ‘I do’ with a clean slate. In a strong VC-startup relationship, both parties want the other to succeed. Mutual respect and excitement should come before a ring.
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