How to Choose the Right VC Partner for Your Startup
Any entrepreneur knows building a successful startup takes blood, sweat and tears — on top of a disruptive idea. In most cases, it also takes choosing the right VC partner. Though us VCs tend to be swamped with one-pagers and pitch decks, spending countless hours on screening and due diligence, we know that the startup-VC partnership decision goes both ways, and that our prospective entrepreneurs are working hard to select the right VC as well.
The founders of our portfolio companies have on several occasions asked me and Judah how we make this critical decision at Hetz. In turn, I asked them how they made theirs. We all agreed that founders must use at least 20% of the time they spend raising money on conducting due diligence on the right investment partners.
After many more interesting exchanges, I decided to combine their thoughts and experiences with our management’s and present you — the prospective entrepreneur — with 5 non-monetary value-adds that a successful VC-startup partnership must provide you with.
1. Domain Expertise
If a VC heavily focuses on your industry and your technology area, and it’s known for it, that’s a great start. A VC that’s committed to thesis-driven investing in your domain will be particularly interested to explore whether your solution is aligned with what they predict for the future of your market. Such an alignment would serve both parties. At Hetz, we proactively look for the best team when we identify a big opportunity in our domains — this was the case with our portfolio companies DeepChecks and Codota.
A VC with solid domain expertise would possess knowledge of and experience in go-to-market strategy in your field. Domain expertise is crucial also because it can make a make-or-break kind of difference when your investor doesn’t understand your challenges versus when they understand the nitty gritty of what you’re talking about. To become true partners, you need the latter.
2. Business connections
Say you have a new DevOps solution. You’d want to find a VC that not only focuses on that area but is also proactive and has connections to corporate VPs of Engineering or Heads of DevOps. Facilitating introductions in order to provide you with access to the market, potential customers and partners is what a good VC partnership is about. In parallel, it’s worth studying the VCs portfolio to ensure you are not competing over clients or the VC researches!
The more international a VC’s reach, the better it is for your startup. The question is, can a VC truly promise you such connections? Pre and post investment, they must be able to put the
money where their mouth is. The best way to find out if this is the case is to proactively ask for 1–3 connections before signing on a Term Sheet. You’d be surprised how many won’t be able to provide on their “promise.”
3. Access to top talent
For any serious startup, access to top talent is one of the top priorities, whether it’s hiring a visionary C-level executive in the U.S. or an experienced front-end developer in Israel. The best way to find out how much a VC assists in hiring the best talent is through existing portfolio startups. Talk to the portfolio CEOs and CTOs to get a sense of how their partner-VC has or hasn’t helped.
4. Scaling
As a Founder, you’re looking for a VC partner who is happy to spend a generous amount of hours on product sessions with each one of their portfolio companies. You want to make sure that your VC-partner-to-be has the experience and the knowledge to understand your products. Ask if they have experience scaling tech products. See if they have what it takes to act as your ambassador when talking to prospective customers and late stage investors.
5. Support
A good VC partner is founder oriented, acting as a source of guidance and addressing challenges in a productive, truthful way — both when smooth sailing and during critical times such as an up-round with an external investor. It pays particular attention to this dynamic and goes the extra mile to be there for its entrepreneurs. The relationship goes beyond, way beyond capital and investments. A good VC partner invests in this relationship.
More tips
When entrepreneurs talk to the VC’s existing portfolio entrepreneurs, they should ask several key questions. First, how much business came from this VC? How much of it came from US, Europe or Israel? How was the introduction process? Other questions to ask include, how often are you in touch with the VC? How available are they? Do you feel equal to other companies in the portfolio?
I hope these tips and questions will help you in identifying and selecting the right VC for your startup. It’s an important step to take — and one that can give you much more than peace of mind as you plan ahead.
