How to pick the right venture capitalist (VC) for your business or tech start up

Last updated: 24 September 2021

Estimated reading time: 6 minutes

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If you’ve decided to look for outside capital to finance your business or tech start up, then you may be considering a venture capitalist (VC). We’ve written a guide to the VC fundraising process, and in our experience, one of the most important elements is picking the right outfit.

This can involve several factors from cultural fit and interpersonal dynamics through to sector expertise. One way to maximise your chance of choosing the right firm is to set aside a period before your ‘official’ fundraising efforts to do your research, start discussions and perfect your pitch.

If your business is at the stage where a VC would be a good fit, you’ve probably already got some experience at pitching to investors and some idea of what kind of VC you’re looking for. But there are no shortcuts to finding the perfect match, and thorough research and active networking is essential.

So, where do you begin? Here are our top tips to help you find the VC that’s right for you.

Jump to:

  1. Reach out to your peers who’ve experience with particular VCs
  2. Look out for VCs with industry experience in the same sector
  3. Go with the big names and heavy-hitters with great reputations
  4. Look for investors who share your goals
  5. Attend award events and competitions
  6. Attend an accelerator event for start ups
  7. Exploit your network for warm introductions
  8. Pick VCs who specialise in your type of business (seed, early-stage, expanding…)
  9. Go for a VC who’s close to you, geographically
  10. Make sure the money’s right

Reach out to your peers who’ve experience with particular VCs

There’s no better way to get started in your search than by targeting a couple of your peers who’ve successfully won VC investment. By combining the VCs they recommend with your desktop research, you’ll get a head start by curating those firms most likely to be a good fit for you.

As well as your immediate peers, consider approaching those companies who are a little ahead of you in the fundraising game. They’ll be likely to have up to date information on who’s actively seeking new investments and be prepared to provide you with their lists of potential VCs to save you time in creating your own.

Look out for VCs with industry experience in the same sector

When you’re doing your research, a simple way to narrow down your shortlist is to look for firms who’ve experience in a similar sector. Just like you, VCs are in this business to make money, and every VC is looking for that magic investment that will bring spectacular returns on their money. For this reason, they increasingly focus on particular niches, be that financial or sector-led. That way, they don’t waste time investing in industries of which they have no particular experience and to which they can’t contribute much beyond the money they bring to the party.

Make your life simple by focussing your efforts on VCs that operate in your market sector because they’ll have a better understanding of your pitch and be able to critically evaluate your business proposition and ambitions, giving you a head start on the competition.

Go with the big names and heavy-hitters with great reputations

Picking the right firm for your next round of funding can contribute a high amount of credibility to your business overall. Raising funds in the future will be much easier with a top-flight VC on board. You’ll get more money, and on better terms.

One of the first questions most potential new investors will ask you is who’s already investing. In fact, this could be a major feature in future pitches. So, this issue is a big consideration. Finding a VC with a solid reputation coupled with a good fit is primordial.

Look for investors who share your goals

When hunting for the right VC, it helps to identify your most likely end-goals. If this may be the first in a series of fundraising efforts, look at your targets’ records for continuing to invest in follow up rounds. If you’re shooting for an IPO, whittle down your list to VCs who like this kind of exit. Lastly, if ‘fit’ and support are important to you, you’ll want to choose a firm that’s user-friendly and has the reputation of working well with founders.

Unfortunately, some firms have poor reputations that precede them. Some are flexible and accommodating with businesses that fail to meet milestones or KPIs, whereas some can be difficult. When chatting with your peers and attending networking events, these are the kinds of questions you need to be asking.

Remember that fundraising is about finance, sure, but also about people. You’ll want a VC who’ll be your best advocate for your business. This may be a long-term relationship, so treat the relationship like a potential marriage. Look out for real excitement and commitment from your VC and you won’t go far wrong.

As a final thought, consider your approach to business. Do you like a lot of autonomy or would you appreciate the support and personal investment that an experienced VC can bring? In the latter case, targeting firms who are available to provide advice when you need it can be invaluable.

Attend award events and competitions

Many founders choose to compete in awards events and competitions. Why? Not just because they can win cash prizes, but also because these can bring loads of perks for your business, including reaching hundreds of potential VCs.

Awards events also allow you to compare and contrast your pitch with others and share in the media exposure that these events bring. You may find your pitch covered in specialist media, gaining valuable coverage in the process.

What’s more, you’ll get expert and considered feedback on your pitch, so you can spot the kinds of gaps that might cause you an issue with potential backers.

Attend an accelerator event for start ups

Accelerators are short-term boot camps that will improve your readiness to go to market with your pitch and get ready for funding. Here are the benefits that accelerators can bring:

  • You’ll have dedicated time and facilities to work on your fundraising efforts, outside of the time you spend running your business. This can give you the breathing space you need to raise your fundraising game.
  • Some programmes offer mentorship opportunities, workshops and chances to practice your pitch.
  • You’ll get to meet your peers and build a network that can lead to more and better opportunities.
  • On the pitch day itself, you’ll gain access and exposure to VCs that are keen to find their next investment.

Exploit your network for warm introductions

Building early relationships with potential investors is a great way to gain finance, and you should start this process even before you think about going out for funding.

Not only will this save you time when you’re ready to go to market, but you’ll build relationships with investors who are genuinely interested in your business. By making clear that you’re not fundraising at the minute may make it more likely that they’ll make time to learn about what you’ve got to offer.

Talk to your network and ask for warm introductions to as many VCs as possible, even if you don’t think they’d be a great fit. You can still ask for their advice on the fundraising process, and what they’re looking for in a potential investment.

Pick VCs who specialise in your type of business (seed, early-stage, expanding…)

Each type of VC funder has different motivations. They may have upper limits on the amounts they typically invest or specialise in certain types of businesses or stages in the business lifecycle. There will be a particular set of investors who are funding-ready for your business stage, and by focussing your efforts on them, you’re more likely to get results.

Go for a VC who’s close to you, geographically

Meetings, particularly in far-flung locations, can be time-consuming and costly. In the hunt for your new investor, considering VCs that are close to you geographically, as this can give you a major advantage. They’ll also be more likely to understand the local market and any factors that are particular to where you’re located.

Make sure the money’s right

Even if you’re sure you’ve found the right VC for you, you still need to make sure the package they’re offering is right for you. If you don’t think the money they’re offering will offer you sufficient headroom to take your business to the next level, then the best thing you can do is walk away. Going back to the VC market for an interim round will only harm your business, suck your time and damage your reputation.

Setting your financial target early and upfront will help you in the long term, so stick to your guns.

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What next?

If you’d like to know more about VC finance or are on the hunt for funding, contact our team of expert venture capital lawyers. Get in touch on 0800 689 1700 or fill out the short form below with your enquiry

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