How to Choose a VC That’s Right for You

Choosing a VC can be a daunting process. Before reaching out to VC firms, an entrepreneur should ask him or herself simple but critical questions like these:

• What size venture partner is right for my company? Big firms provide benefits like greater reach and brand cache, but smaller firms can offer a more hands-on approach. The right choice for you depends on the next question.
• What do I want to get from this relationship and what kind of partner am I looking for? Do I just want the money or am I looking for my VC to open doors for me? Does the firm have relationships that matter to me in my market and can they give examples of where they’ve leveraged those relationships for their portfolio companies? Are they strictly investors or do they have executive and/or entrepreneurial experience – in other words, have they walked the path I’m walking? Will they serve as a solid sounding board for me and will they give me the right counsel based on an agreed-upon vision/mission for the company? Do they understand and agree with my vision and the company’s mission?  
• How involved in the running of the company do I want my venture partner to be? What kind of working relationship do I want to have with them? Are they hands-on or hands-off and which is best for me? If I want a hands-on approach, do I like and respect these people? Do I want to work closely with them and take their strategic advice? Will they only come to quarterly board meetings or can I get them on the phone whenever I need them? Will they help solve problems or just focus on the reasons? Will they tell me the hard truth when I need to hear it and can I trust their judgment?
• Is geography important to me? How about domain expertise? Are they close by so they can be involved at whatever level I want. Do they know my market or my customers in a way that fills a gap or adds value? Have they helped other companies solve a business problem like the ones I’m facing?
• Does the firm have any directly competitive investments that would preclude it from investing in my company? Be sure to determine whether these companies are really competitors or whether they are potential partners or acquisition targets. VCs often like to make investments in similar spaces, so look for synergies between your company and the VC’s existing portfolio. Ideally, VCs want to have a mix of like-minded companies. Of course, too many similarities would be a conflict.
• Do I expect to request follow-up funding in a couple years? Does this firm do that kind of funding or are they limited? Do they have good contacts for my next stage? Do they typically invest once or for the long term? 
• What kind of network and reach do I want to find in a venture partner? Do people know their name? Does their name open doors? Can they help me get further than I have gotten today? Can they prove it?
• How does the amount of money that I am seeking mesh with the firm’s philosophy? Know the typical investment size and strategy before you attempt to get a meeting. VCs typically have a standard approach to investing and they don’t usually deviate from it. If you only want $500,000, don’t go after the biggest firm on the block that never invests below $5M.
• At the end of the day, can I work with the partners? Is there a mutual feeling of respect and chemistry? This might seem like an obvious question, but it’s among the most important.

 

At Grotech, we believe that venture capital is about a lot more than money. We love to roll up our sleeves and work side-by-side with our portfolio companies for the long haul. We’re entrepreneurs ourselves, and we thrive on hands-on interactions with our portfolio companies and their executives. We don’t just write a check and disappear. Along with financial support and decision-making guidance, some of the other ways that we help our portfolio companies include human resources, PR/marketing and professional networking.

To maintain this personal touch, we keep our portfolio relatively small. A personal touch is also evident in our chosen geographies. We focus on our home region (the DC area) as well as select markets (i.e. Colorado and the Southeast U.S.) that have historically been underserved by the venture community. We have at least one partner in these locations almost every week.

In terms of domain expertise, we are strongly focused on high-potential, early-stage technology companies. Within that, we cover a fair amount of ground. Our partners have diverse backgrounds and we have deep knowledge of many markets, including communications and IT infrastructure, software and services and Internet and digital media companies. We think that domain experience is important and we’re most interested in these areas. Entrepreneurs should know that we don’t invest in life sciences, biotech and foreign entities.

We feel that our success speaks for itself. We’ve been in business for 25 years and we’ve funded a host of successful companies like Advertising.com (acquired by AOL), Digex (acquired by Verizon) and USinternetworking (went public, was later acquired by AT&T). Through our seven funds, we have managed more than $1 billion and our LPs have happily returned time and time again.

Today, we’re maintaining our hands-on, expert approach while weaving in a wider spectrum of initial investments, anywhere from $500,000 to $5 million. Smaller investments are a valuable tool in today’s business climate. It no longer takes $10 million to get a technology company off the ground, and we’ve adapted to meet market needs.

If you like what you’ve heard, we encourage you to Submit a Plan. We’re happy to provide references if you’re interested in learning more about how we work and how we have contributed to our portfolio companies’ successes.