Some startups assume anyone who would fund their business is worth having, but the truth is, it’s a two-sided coin. A million dollars in seed money from a company with zero connections in your industry is not equal to a million dollars (or even less) from a company who has experience in your field. More than money, you want expertise and guidance from a venture capitalist who can help take your company to the next level, not burn through your bank account.
1. What’s Your Industry Experience?
If you’ve watched the Shark Tank, you’ve probably seen Barbara or one of the fellows bow out of a deal because they didn’t have the experience the startup needed to succeed. This is smart, and most VCs won’t invest beyond their scope of experience. But it’s also up to you to interview an interested VC to understand if they’ve helped similar companies through funding, and what degree they get involved to make introductions in the industry. Sometimes a VC will pull in another who’s better connected.
2. How Involved Do You Get?
While you’re not looking for a micro-manager (that’s why you quit Corporate America, right?) you should want a mentor and someone who is willing to help you with strategy. That doesn’t necessarily have to come from your investor, but having a Daddy Long Legs who simply signs checks and is never seen isn’t all that helpful to you, especially if you’re new to this whole running a business thing. Look for someone with like interests and energies who would be willing to sit on your Board.
3. Who Do You Know?
This is what it’s all about. You may have spent six months knocking on the door of a corporation who couldn’t be bothered to return your calls. But with the right investor, that door might magically open. An investor’s goal is to recoup his money and make more on it, so it’s to his advantage to help you succeed.
4. Trust Your Instincts
If someone’s waving cash in your face (right. because it happens like that) and you just don’t get a good vibe from them, consider that. You’ll be involved with this person for years, so is this someone you can stand answering to and meeting with on a regular basis? If not, there are other fish in the money sea.
While funding is a necessity for your startup, remember that you have other needs when it comes to success. Interview your potential investors just like they’re interviewing you.