Finding the right VC: it’s not all about the money

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Since I came back to Malaysia, I have had the privilege to speak to many different people in the entrepreneurship ecosystem: startup founders, startup employees, incubator/accelerator CEOs, aspiring entrepreneurs, investors, and anyone who cared to discuss with me about venture funding in the SEA startup scene. I learned a great deal about the ecosystem by listening to these narratives and experiences.

However, when I compared this to my VC experience in London, there was a common idea that VCs only provide capital; everything else that comes from them is generally bad. These are some examples of what I’ve heard:

• I only want VC money, not them messing around with my business.
• VC is this evil overlord that will wake me up in the middle of the night and ask me about my growth metrics when I finally found a night where I can sleep.
• VCs are just so arrogant; they think they have it all because they have the money.

While these opinions may have been true to some extent, the VC industry is also undergoing a mindset shift due to a more competitive landscape in deal sourcing. (It’s a 50-year-old industry ready to be disrupted, ironically). To be fair, VCs have a legitimate reason to be paranoid — they placed their bet on founders and have fiduciary duties to their limited partners who have set aside a pool of capital for 5-10 years.

VCs have their metrics to hit as well and are in it for the long term. The best VCs will live by the motto of DBDB (don’t be a douchebag) because their access to superb deals like Box, Facebook, and AirBnB are tied to how well they maintain their reputation in the industry. They understand their success is dependent on how well their portfolio companies are doing.

I like to think that both parties want mutually favorable outcomes from every closed deal. So here are my two cents: as much as VCs conduct due diligence on founders, founders should also conduct the same on interested VCs.

These are five key questions that founders should consider when they are deciding if they should take money from VCs.

Operational experience

Do they have the operational and team building experience to advise you on the dos and don’ts of running a startup? A great VC will be able to provide relevant been-there-done-that experiences when you are facing a sales bottleneck or recruitment problem.

A great VC can help you stay focused and prioritize the important tasks. They have the extensive Rolodex (well, today it’s probably CRM) to connect you to the right person when you need professional services such as admin, legal, and accounting services.

Scaling experience

Do they have the relevant scaling experience (or necessary network) to help you grow your business when you need to scale to another market? For example, when I was working at Illuminate Financial previously, one of our US-based portfolio companies took us on board because they wanted to expand to Europe. After the deal was closed, their number one employee came to London and worked in our office to expand their market until they were mature enough to start their own office in the country.

Stance on funding

What is their stance on follow-on funding? How much help will they give to help you raise a subsequent, larger round with their connections with the downstream VC? Upfront Venture has a database of downstream VCs that was built by their latest partner, Kevin Zhang, as outlined by Mark Suster in one of his latest posts.

How wide is their network within the VC industry, and are they able to introduce you to other investors that will help you close a larger round? This is something founders/investors often overlook. Who have they co-invested with? Do they have the capacity to help you plan for the next round of fundraising like organizing fundraising event and refining investor decks?

Wide network

Do they have the relevant sales network to help you sell your business or strike partnerships with key players in the space? This is probably the cheapest but most valuable asset a VC can offer to their portfolio companies. For example, once you achieve product-market fit, will they be able to introduce you to bigger potential clients or form relationships with potential channel partners?

Helping hand

Conclusion