A founder’s guide to evaluating the right VC partner
I recently had the opportunity to choose who to partner with for venture funding of my startup. I wanted to reflect into words what I was personally looking for in our next investor as a way to crystalize my own thinking and provide a yardstick for how to evaluate options. These were my specific notes, written to myself, to help center me and my thinking. There might be some benefits to other founders so I’m sharing…
First and foremost, an investor is a capital partner. I’m looking for someone who can support my goal of raising an adequate amount of capital at the right valuation that will support our ability to focus on the long-term opportunity and build the business at the right cadence with the right iterations.
I specifically focused around the word “adequate” because too much capital causes laziness, bad behavior and hubris. However, not enough capital causes unnecessary cycles focused around maximizing short-term metrics to achieve the next round of funding. I want enough capital to eliminate the ridiculous startup theatre around “next round metrics” so that we, as a company, can be focused on solid execution to build the company we aspire to be — in the right time frame and sequences it will take.
I want enough capital that if we execute the way I believe we will — we will never need to raise subsequent financing to “operate the business”. We will only raise additional capital because we have strategic opportunity with a strategic partner at the right valuation — not because we need to fund operations to continue to survive. I never want to be in a situation that requires a capital raise to make payroll.
I want a partner that will not push us to spend unnecessarily because “we have all this cash sitting in the bank”. I’m OK if we never spend all the money as long as we achieve our goals of creating a long-term, sustainable business that solves a real pain in the market.
I want a partner that will not always compare our metrics or traction with “other companies” in an unhelpful way — one that is apples and oranges. We’re building something unique that won’t necessarily look like the other things out there and I want a partner that will help us think through plays that might be similar and could be helpful — but also is able to discern one’s that don’t necessarily apply.
I want a partner that can help us strategically, as a board, set high expectations that are achievable. I want a partner that will help us navigate through the ups-and-downs of building a company because it’s always harder than it seems. I want a partner that knows when to push and when to back off. I want a partner that wants to help us create a board that is strategic and sufficiently independent.
I want a partner that knows when it’s the right time to help recruit a new person to the team and when it might be better off to wait a bit longer — and will trust our own discernment as part of the calculus. I want a partner that can help us find other people to help us build the company — as independent board members, as other advisors, as people that can join the team full-time.
I want a board member that will help us think through the long-term strategic objectives of the company and work backwards to help us reverse engineer how we get there through multiple successive iterations. I don’t want a cheer leader (although a word of encouragement after a tough day helps), I want a partner. I need someone who can be there when things are going great (that’s easy) but also someone who will be there to help us when things suck, are hard and not fun. I want someone that will push us to be great, but recognizes that as founder’s we’ll always have the best interest of the company ahead of anyone else at all times.
I want a partner that I have good chemistry with. Having a venture investor as a partner is a long-term relationship — most likely 10+ years or more. I’m looking for someone that I enjoy talking with and spending time with — not someone who shows up every so often, has a few smart words and then I don’t hear from unless they want something.
I believe Pinpoint is in a unique position — we are at the forefront of creating a new category. If we can achieve what I believe we can — we get the opportunity to define the dynamics of the category, set and drive the market price and take 70%+ of the market value. I want a partner that recognizes this, understands that there will be a lot of iterations and maturity in building the category and is thoughtful and helpful around various stages (when to speed up, when to slow down) and can help advise us on how to win the market long-term. I believe strongly that if we go a bit slower early and put the right pieces in place foundationally, that our ability to scale and aggressively growth revenue will be maximized.
To win the market long-term, we need a partner with patience. I’m looking for a partner that is comfortable in their own firm and doesn’t need a quick win to raise their next fund or get more seniority within their firm. I’m looking for a partner that believes that if we win the market — everyone will win big, especially the founders and employees (and certainly, the investor too!).
I believe that if we win the market and execute well, we’ll have plenty of options for liquidity — either through the public markets or through M&A. I’m looking for a partner that will help us always evaluate the right way and best time to maximize the value of what we’re creating and won’t over index in one direction.