VC's competitive advantage - how to avoid being stuck with a VC you don't want

The hunt for the perfect VC to back your start up, now comes down to so much more than simply what kind of cash they can give you.

If you’re looking for a partner to back you financially, you may also want them to be highly connected in your industry. You may want them to have worked first hand as a founder to give you some life lessons and stop you from making avoidable mistakes. Or maybe you want them to reach out to their network to find you the perfect c-suite hires to get you to that next stage. Regardless of your motives, chances are if your start-up is looking down the barrel of a growth tunnel, and you’re not quite sure when you’re going to reach the end - the partners you take with you on that journey can make or break your experience.

The fact is, every Venture Capitalist is on the hunt for decacorns and unicorns, meaning they want you just as much as you want them. They want you to take their money, because you could be their diversification, their next big ticket and if you succeed - they succeed. So what do VC’s do? They make promises. They create a brand that can pique your interest and make bold statements like “entrepreneurs for entrepreneurs” (when quite possibly not a single one of them has actually started a business…).

This can make it exceptionally difficult to find the right fit, when a lot of them are cookie cutter and many of them are making false promises.

Forward Partners published this fantastic breakdown on some of the statistics around this. While 92% of VC’s claim to add additional benefits - 65% of founders would disagree. 3 out of 5 founders also said they were disappointed with their VC’s overall and 49% said that the “value add’s” being promised added no value to their business at all. It seems that the nifty VC websites are simply a calling card or sales tactic to get their slice of equity in a start-up’s success.

So, you’re a founder and you need funding, but you don’t just want cash, you want a partner that can really help push your business to the next level - where do you start?

Think about the support you want

Chances are you probably want a VC that’s helpful, supportive, well connected and friendly to deal with. You will be spending a lot of time with these people and most likely having tough conversations with them, especially if you find you need to pivot your business or the milestones they set are too lofty. A good way to start is by creating a job description for your VC, think about the areas where you are lacking in certain skills and let that help shape your list of requirements- or maybe your business works in a specific industry or niche, do you want to work with a specialist VC with experience in that area? because remember, you are allowed to be picky too. Back yourself as much as they will surely back themselves.

Think about communication

You will need to talk to these people a lot. They will tap you on the shoulder when they want progress, they will push you to keep going when you’re exhausted, and so you should also expect the same level of dedication from them. Do you want a VC that you can reach out to on Whatsapp whenever for whatever? Or would you rather a dedicated account manager that pre-plans check in’s and board approval meetings? These are two very different ways to communicate and gain the added value from your VC, and there are pros and cons of each - think about how you want to do business and what method is best for you and keep that in mind. As the less friction with communication styles means the less friction with the actual communication also.

Check references

Treating this process like a job interview for a key hire is honestly your best bet. VC’s are pretty transparent with their references too - as they are essentially their previous portfolios ;). If you’re thinking of getting into bed with a VC, it could pay to drop the founders of some of their previous funds a message to ask how their experience with them was, what they thought about working with them and what additional value did they add? We’ve found a great way to bond with founders is to swap VC horror stories (sorry but it's true!) we’re not saying all are terrible, there are definitely some great ones (we will get to that later) but in our experience founders will be honest with founders - especially when it comes to venture capitalists. Another great reference for this is Landscape VC (think Glassdoor for Venture Capitalists).

Consider working with more than one

It’s actually pretty unlikely that one VC will be able to offer you everything you want, so maybe diversifying your choice could be a good way to get the funds you need and also the support. VC’s look to diversify their portfolios every time - and you are most likely one of those diversifications. They know that they only need one or two big successes for their fund to close in the green - so treat them the same way. Get your cap table to be as diverse as their fund and chances are you will probably end up getting what you need… It may make some friendly competition between each of the parties too.

Finding your dream VC is frankly probably a lot harder than finding your soulmate. There's a fine balance between cash, likeability, experience and network - and there is no rocket science to mitigate the right balance between them all for you. Your best bet is to go into fundraising knowing your worth, understanding your needs and not being afraid to be picky.

To get you off on the right foot, some of the VC’s in the UK we’ve heard great things about are listed below (no they did not sponsor this, we’re doing this because we believe the lofty promises on their websites more than others - and our ultimate goal is to see more start-up’s succeed, so more employees can also succeed):

• Blossom Capital - female founding partner and only invests in 5-6 companies a year. They take a more tailored and considered approach and offer hands-on support.
  
• Bethnal Green Partners - their focus is tech for good, especially companies with a social or purpose driven element. They’re a sophisticated team and a fair few of their team have experience in start-up’s too.
  
• Kindred Capital - Founders of their fund end up becoming co-founders of the fund - meaning everyone has an invested interest in everyone succeeding. This makes for a super engaged community.
  
• Stride.VC - A smaller VC with an active approach and practical due diligence. They work with their portfolio and take a more curated approach to finding start-up’s and founders they want to support.
  
• Sustainable Ventures - This VC is focused on sustainability and the net-zero thesis. Their staff generally have experience within companies in this domain who have hoped over the fence into the VC world. This means they have a more hands on approach than just giving you money.

Do you have a VC story you’d like to share? We’re working on growing our database of VC knowledge to better help the start-up’s we work with. If you’ve got a great funding partner or a terrible one, give us a bell and we can swap stories over a coffee or pint 😉