Editor’s Note: Let’s face it. Most startup dread the abbreviation VC, even if it may turn out to be Vice Chancellor, or Vice Chairman. It’s always Venture Capitalist the come to mind. Funny thing is everybody wants to be one, but nobody want to have to face one. Read the article below and your ‘VC Dread’ gauge should fall.
Venture capital offers a welcome boost for many entrepreneurs. It pays to exercise caution when seeking financiers though. Here’s how to tell a good venture capitalist from one you should avoid.
Good venture capital
1. Welcome venture capitalists with experience and skills.
This means you’ll be getting financial assistance and an extra set of hands to help out with any challenges along the way.
2. Find a venture capitalist with a good track record.
You can look at their network and success rate and feel safe that you’re accepting finance from someone reputable who will stay with you until the end.
3. Ensure you get on with the venture capitalist on a personal and professional basis.
You need to communicate, so there must be common ground where you agree far more than you disagree. If you can’t wait to speak to your financier every day, chances are you’ve chosen the right person.
Bad venture capital:
1. Avoid selling to someone who will only offer financial support if you sell a controlling share.
If you’re selling a part of your busines, make sure you always maintain the majority share. By letting go of more than 49 percent control of your business, you’re putting yourself in the position where your decisions can be overturned and there’s very little that you can do about it. If the potential financier demands controlling interest, decline their offer and find someone more accommodating.
2. Political venture funding should be avoided.
Politicians have a reputation for making decisions based on political outcomes. Rather seek people with genuine entrepreneurial interests at heart.
3. Seek venture capitalists with a good reputation.
Reputations spreads quicker than one thinks. Network with fellow entrepreneurs who have used the services of venture capitalists before. They may have invaluable information on what clues to look for when distinguishing proven venture capitalists from bad ones. How long has the business been in operation? Does the company have any other successful business operations? Do you have access to reviews from past entrepreneurs they’ve helped? How transparent are their business operations? These are all useful questions to ask before sharing your hard-work and ingenuity with a prospective venture capitalist company.