Is it really out there? Finding the right VC for your venture

The Cinderella Tale: Finding the right VC for your new venture.

When a company decides to go with funding through venture capitalists, there are many things that the company must look towards when deciding which venture capitalist is the right fit for the corporation.  Ron Bloom, Co-Founder and Chairman of Mevio.com, a ComScore Top 20 Site for music and new media, in an interview at Stanford University, Bloom described his experience as an entrepreneur seeking funding from venture capitalists.  Eventually, Bloom and his partner decided to work with Ray Lane, a managing partner with Kleiner Perkins Caufield Byers.  Bloom described his experience searching for the right venture capitalist partner as one that would allow the VC and his team to work closely together, but that would keep the ideal of the company at heart.  He wanted an investor that would allow the company to grow at its natural rate and would not impose a lengthy decision making process.  Rather, they sought out one that would embrace the company’s rapid “Yes or No” style but still have the expertise of running businesses and succeeding with other business ventures.  These decisions were made independently of the VC and drove Bloom to his final decision.  Bloom also sought out an investor with a background that would complement his current company’s skill-set.  The decision process was much like that of hiring a new employee.  As he puts it, he felt as though Lane’s experience and company expertise “would be a good fit” with their venture.  Conversely, the marriage worked well because Bloom’s company was one of only a few in the industry that had approached Lane’s company and, as Lane describes it, “was only half right in the vision for the company, but was twice as right as anybody else”.  Bloom was fortunate to have chosen this, but through his careful research and planning, he was able to get funded for his now successful venture.

Finding the degree of trust and mutual understanding is integral to the success of the relationship.  As described in Gimmon, Yitshaki, Benjamin, and Khuval’s study Divergent Views of Venture Capitalists and Entrepreneurs on Strategic Change in New Ventures, the “inherent conflicts between venture capitalists and entrepreneurs are reflected in perceptions of trust”.  In fact, “there is growing evidence that trust serves as a relational mechanism that constitutes… [improved] relations between VCs and entrepreneurs”.  Finding a relationship that not only fosters this trust, but one with a VC that can promote and further your business strategy is one that should be enacted.

            My personal opinion on this matter is in complete agreement.  Today, there are many people that are acting as VCs and as investment-seeking entrepreneurs.  Though money lending is tight, there are more opportunities for those who do get funded to truly make a large impact with the funds they are awarded.  The market is prime for the birth of businesses today and as the economic recovery continues, VCs and entrepreneurs alike will continue to see their businesses grow and flourish.  However, as Randall Stevens of Punndit indicated, I believe it is integral to find the investor that will work with your company as a growth agent.  This could include finding an investor that is already well-versed in the industry or a similar industry in which you wish to enter.  This investor may have prior success experience to share or a portfolio of contacts that would otherwise go unutilized.  This could also mean finding an investor that you like personally.  The personality of an administrative-type businessman is very different than the personality of an entrepreneur.  The VC will be working closely with the entrepreneur in this venture and it is critical that there is a mutual understanding and respect for each other’s mindsets.  Finally, the entrepreneur must realize all of these things when seeking out funding, but the entrepreneur may have to make a tough decision at some point in this process.  Through conversations and getting to know the VC, there may come a point where the entrepreneur must walk away from the situation.  This can be very difficult to do, especially if talks are rather positive.  Walking away from a VC that you know may not respect your business dreams and may hinder business growth, though difficult, may ultimately allow the company to become more profitable with the marriage of the right VC, with his or her skills, connections, and money, to your dream.