Understanding Venture Capital

I’m starting a new series called “Understanding VC’s” in which I’ll try to give you a better understanding of the way venture capital firms work to give you a better understanding of what you’ll be dealing with when you need to raise money.  Here are some of the topics I’ll cover (if they’re not linked I haven’t written the post yet):

1. A VC has shown me interest and taken several meetings.  Am I likely to get to closure? – If you’re talking with a good VC firm and partner they’re likely talking to many companies at once.  So even if they “show you the love” they probably have other deals that they’re also very interested in.  In fact, most VC firms are like airports, they have a limited number of landing slots and a crowded sky of airplanes all at different points of distance and all hoping to land. Your firm may be very interesting but may still get diverted to another airport or asked to come back when weather conditions have cleared.

2. Does the size of VC fund matter? Knowing the size of the current fund, year raised, number of deals left to do and where the VC is in the stage of raising another fund all matters. Read the post to find out why.

3. Understanding the risks of VC signaling – When a VC invests in your company and is tepid at best about doing a follow-on investment you fall prey to the “VC signaling problem.” This is true whether you’re an EIR, raise seed money from a VC or raise an A round investment.  This post specifically deals with the signaling effect and whether it should determine from whom you raise your seed money.

4. Can VC’s invest across multiple funds? – VC’s raise money every 3-6 years in different funds.  When they invest in your company they prefer to keep the entire investments in one fund.  This post discusses why VC’s prefer not to cross over investment funds.

What is the typical fund raising process?

How do I know whether the VC is working on other deals?

How do I know whether or not the VC I’m talking with is interested in my company?

How does a partner get a deal approved?

Does it matter whether that partner just announced funding on another deal?

Are some partners more equal than other partners?

How does a VC fund work?

Who invests in a VC fund?

How long does a VC fund last?

Why do VC’s like to have other VC’s lead their next round of investment?

How does it differ with angels?