I know what you’re thinking, “The Bachelor has nothing to do with venture capital.” And I say, oh but it does!
Picture this: You’ve spent tireless hours building your product, you’ve executed like hell, you’ve met with 25+ investors and you’ve found yourself in the enviable position of choosing between multiple terms sheets. Now, how do you choose which one to sign?
C’mon, it doesn’t sound that far off from a ‘Rose Ceremony’ on an episode of The Bachelor! Replace your product with you and your career, replace investors with suitors, you catch my drift…
In all seriousness, sometimes choosing which investor to go with is simple because your favorite firm gave you the best terms, but rarely is it so straightforward. Here are three things to consider, outside the terms themself, when choosing your investor:
1. Recognize that you are choosing a partner, not a piggy bank. People are differentiable, money is not. You need to consider you’ll be spending significant time with this person. You should feel a mutual level of respect and candor. We encourage you to spend time with potential investors in a social setting; see how they interact with the waiter over dinner, or better, the Uber driver on the way to dinner. You should ask yourself the proverbial, ‘do I want to have a beer with this person?’ question. If you’d rather not, maybe reconsider!
2. Assess the specific value gaps an investor can help fill and their ability to do so. It seems obvious, but look for an investor that has a proven track record and preferable operating experience in an area that is directly relevant to your business model and industry. Ask yourself, ‘how connected and how smart is this investor for what it is I’m trying to grow and build?’ You wouldn’t need venture capital if you had all the answers so be sure you’re positioning yourself to get the answers from a strategic, knowledgeable partner.
3. Determine the investor’s ability to help bring on follow-on investments. Follow-on investors often look to the Series A investor to evaluate the legitimacy of a company. Meaning having an incredibly supportive Series A investor is paramount when considering the next time you go out to raise money, or when it comes to filling out your current round. If your investor isn’t willing to stick their neck out on the line for you to bring in additional funds be sure to find out why before moving forward with them.
By now, you’ve heard time and time again that when you bring on an investor you’re entering into a 10 year marriage (with a very tough prenup!). When it comes time to hand over your final rose, I mean accept a term sheet, be sure you’re looking beyond the surface and picking the partner that’s in it with you for the long run.