Evaluating VC’s

Posted by: Klaus Nyengaard on Tuesday, April 7th, 2009

It is important to be spot on when picking a VC. We are in the fortunate situation that we can actually pick among the best of the best, so we don’t really have an excuse if we end up with anyone but the VC that is the best for our company.

So, what do you do? You need to focus on a couple of things!

1: Chemistry. And this is not only related to the lead partner, but the partner team in general. Those VC’s which make sure you get one-on-one with several partners early in the process are the ones that impress me the most. At least they should make sure you get a feel for all the relevant partners in the company before detailed discussions on terms starts.

2: Industry. Always a help, if the VC has relevant experience, and not only the kind of general VC talk of “we once invested in an internet company, so we understand web 2.0″ logic. Dig into the actual portfolio companies

3: Reputation. Image is everything – and it is the image of a VC that can open doors to new top employees, partners, resources. “Ah, so they invested in you, ok, let’s talk business because you must be serious” – that is what you want from a VC. One of the side effects of partnering with a strong VC is, that they will be able to intimidate some potential competitors from entering certain markets. Few wants to battle a VC with an aggressive reputation and a war chest from a fund of hundreds of millions.

4: Network. As complementary to the reputation, you want access via the VC to the best possible network of talented people (advisers, employees, board members, etc.) as well as partners. If you want to knock on the door of Apple, it is really beneficial if the VC can give you access – and if they on top of that has the reputation then you have a lot, and the rest is up to you.

5: Ethics. Well, some people say that all VC’s are lying, cheating bastards, and that the good ones are just better at lying and cheating than the not so good ones. I don’t think (hope) it is so. One of my colleagues has worked for a VC backed company that went belly up, and he could tell about how some senior partners actually were very supportive in the process of cleaning things up. So, when on the way up, get a feel for how your VC will be if things turns around.

The next issue is how to dig up information on the VC’s! The easy solution would be to use www.thefunded.comand bet that the information on that site was updated, complete and valid. Well, that is probably¬†a stretch, so it is back to more basic research, and the most powerfull tool is to talk to CEO’s from portfolio companies as well as people in the VC and tech community that can prove some kind of impartiality. And that does NOT include VC’s that are no longer part of the process (amazingly, many VC’s say that I can call to get advice on other VC’s, but I simply can not believe that to be without a hidden agenda).

To pick your CV is more irreversible than picking your spouse, so you better get it right – the divorce process is really ugly, and risks hurting the offspring quite severely. And also remember, that even though you might end up with the most fantastic VC, it is still up to you and your colleagues to make it happen. In Just-Eat we are very aware of that – what ever it takes.

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