How can you choose the right venture capitalist to finance your business?

I never expected the domain expertise of my VC to understand my business better. VCs invest for returns or benefiting from a series of fundraising. So, we approach VCs who have founders' experience and network with high-value people. VCs should have a vested interest in the success of their portfolio companies and focus on long term values.

Few companies are suitable for VC funds, who invest in extremely high growth businesses that can be sold in 5 to 10 years, i. e. Standard fund length of life. Don’t invent needs and expectations to match venture’s stated goals. That’s not sustainable for a long-term partnership. Be honest with yourself and investors. Not hallucinogenically optimistic. Not unduly pessimistic. What validation points can be accomplished with this round’s money? Will that support increased value for a next round? Is there sustainable advantage and identified customer base screaming for your solution? The earlier stage, the less precise answers are needed. But understanding the importance of the path forward is critical to align expectations.

Imagine you're launching a tech startup with a unique software product. If you're aiming for rapid growth and need significant capital to develop and market your software quickly, you might seek a VC partner who can provide a large funding round and has a track record of supporting fast-scaling companies. On the other hand, if you prefer a more steady approach and are confident in your long-term vision for the product, you might look for a VC with expertise in sustaining businesses for the long haul. These considerations will help you choose the right VC and align your business strategy accordingly

I would advice to check in which similar startups a VC has already invested in and then to reach to their peer VC. VCs in general do in general only invest in one startups of the same kind.

Let's say you're an aspiring biotech startup founder. Before approaching venture capitalists, it's beneficial to research their backgrounds. If you find a VC who has a strong track record of investing in and nurturing biotech companies at your stage of development, it could be a valuable match. However, if a VC predominantly invests in tech startups unrelated to your field, they may not be the most suitable partner. Moreover, a VC with a reputation for providing valuable mentorship and connections in the biotech sector would be highly advantageous for your business. Checking their online presence might reveal insights into their values and approach, ensuring a better fit with your company's culture and vision.

Once you have pinpointed potential VCs, it's time to create a compelling pitch and supporting materials to make a strong impression. Your pitch should be tailored to each VC's specific interests and objectives, succinctly conveying your business proposition. It should focus on key elements such as the problem you're addressing, your innovative solution, market potential, traction achieved, the strength of your team, and a clear ask for funding. Suppose you've identified a VC known for investing in sustainable energy startups. You would emphasize how your renewable energy technology addresses an environmental issue, highlight your progress in terms of prototypes or market testing, and emphasize your team's expertise in the field.

For instance, imagine you're in discussions with a VC interested in your e-commerce startup. The offer they extend may include $2 million in funding, a company valuation of $10 million, and a 20% equity stake in your business, with the expectation of achieving a 30% growth in monthly active users over the next year. Moreover, the terms within the investment agreement are equally important. This involves specifying the type of securities being issued, the extent of voting rights they will hold, the allocation of board seats, the order of payment preferences in case of a liquidation event, anti-dilution provisions to protect the investor's equity, and the available exit options.

For example, consider that you've partnered with a VC firm for your innovative healthcare technology startup. In this collaboration, you consistently provide regular reports on your product development, clinical trial progress, and market traction. You actively seek the VC's advice on navigating regulatory challenges and expanding your network within the healthcare industry. In addition to this, it's crucial to respect their time and resources, avoid any unexpected surprises or conflicts, and acknowledge that a VC isn't merely a source of financial support but also a valuable partner and stakeholder in your business's journey. Building a strong, mutually beneficial relationship is an integral part of a successful partnership.

It is not correct advice that startups can choose their VCs to fund their ventures (with exceptions, of course). But in VC fundraising, it is a tango between the right partners (startup & VC). Let me explain... The VCs raise capital from LPs (Limited Partners), promising them a certain level of returns and a certain set of diversified portfolio (to spread their risks). In scheme of such promises, the VCs are time bound to first invest and subsequently exit from those investments in very particular business startups (This in simple terms refers to their investment thesis). The likelihood of VC thesis matching the startup's capital requirements (stage, amount, etc.) depends a lot on luck and is subject to negotiations from both parties.

The perfect scenario is to find someone that buys into & shares your mission of where you want to go, and why. Easier said than done.