How To Pick A VC

I am not the first to link to this post and I won’t be the last. Jeff Nolan has done an excellent job putting together a set of issues every entrepreneur will want to think through before settling on a VC or group of VCs that will invest in his company.

Go read it.

But I won’t stop there. There are two things in Jeff’s post that I really liked.

The first is his segmentation of VC firms. He puts them into four buckets:

Brand Name Firms
Specialists
Financial Investors
Corporate Investors

That’s as good a segmentation as I’ve seen. I once thought I wanted to build a brand name firm. Now I realize I want to build a specialist firm. I think that’s where the best work in the venture business happens. I don’t like to work with purely financial investors. You get their money and not much else. And I do like to work with corporate investors, particularly the ones that are structured like Jeff’s firm. They can add a lot of value. They are in fact another kind of specialist firm if they are structured correctly (ie the people who do the work are compensated appropriately).

The second thing I really liked about Jeff’s post was his discussion of the dynamics inside venture partnerships. I won’t repeat all that Jeff said, but suffice it to say that it matters a lot who in the firm you get on your board. Do your best to find out if there are politics at work in the firm and what those politics are. There are some firms that don’t have politics. If you can find one like that which is interested in your business and they are a specialist, then you’ve found the best kind of firm to partner with in my opinion.