What’s the best way to choose good financial partners?

Keith Rabois (Venture Partner @ Khosla Ventures)
Are strategic investors in startups more ‘dangerous’ than VCs, from a founder perspective?

Strategic/corp investors are notoriously slow and consume substantially more cycles in due diligence than your typical venture capital firm;
They will generally limit your (actual and perceived) exit options (competitors will not offer to acquire you and future investors will be dubious about whether an independent exit will be a viable option).

Robert Siegel (General Partner @ XSeed Capital)
Strategic investor: Friend or foe?

The broader economic interest of the larger corporation will always outweigh the small financial interest it has in the startup. It is not necessarily bad, per se, that a strategic investor owns stock in a startup, but don’t be mislead into the belief that this will “align incentives.”

Robert Siegel (General Partner @ XSeed Capital)
Strategic investor: Friend or foe?

I will posit that many (most?) Silicon Valley large companies have a more “enlightened” approach in these relationships as there is an ecosystem that encourages acquisitions and collaborations between large and small firms. Outside of Silicon Valley this is not always true — in fact, oftentimes there is no history of such strategic relationships in an industry.

Robert Siegel (General Partner @ XSeed Capital)
Strategic investor: Friend or foe?

a CEO should consider if there is a history of positive interactions in an industry between large and small companies when considering taking on a strategic investor. If there isn’t, be cautious.

Robert Siegel (General Partner @ XSeed Capital)
Strategic investor: Friend or foe?

In the earliest days of a company, a startup is at its most fragile state. As such, a strategic investor has the ability to have disproportionate influence to encourage a young entity to do things that may not be in the long-term best interest of the startup (but might be good for the strategic investor).

Mark Suster (Managing Partner at Upfront Ventures)
Is Strategic Money an Oxymoron? | Bothsides of the Table

The reality is that their core business is not venture capital. So push comes to shove they will be driven by their core business (as they should be) – not the $5 million they put into your company. You are the tail, not the dog.

Mark Suster (Managing Partner at Upfront Ventures)
Is Strategic Money an Oxymoron? | Bothsides of the Table

One of the problems in working with corporate entities is that the venture arm doesn’t always have an autonomous decision-making ability. Imagine your investor has to call the CEO of a $20 billion company for approval for your merger or sale. Fun.

Mark Suster (Managing Partner at Upfront Ventures)
Is Strategic Money an Oxymoron? | Bothsides of the Table

So you took money from the largest player in your industry. That’s awesome because you now have credibility. But guess what – number 2-10 in the sector now you view as an agent for the evil empire. It will be much harder to get deals done there and may drive people to your competitors.

Ron Conway (Founder & Co-Managing Partner @ SV Angel)
Ron Conway, Mike Maples Jr. – Angel Investing Revealed by Stanford eCorner | Free Listening on SoundCloud

[If you’re in Europe] go talk to Atomico, go talk to Baldwin, go talk to Index Ventures.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Global Venture Capital Distribution – AVC

Transportation convenience matters a lot. You can fly direct multiple times a day to and from all of the cities on Richard’s top ten list. Investors value their time and focus it on markets that they can get in and out of easily. I think that has a big impact on where money flows.

Bruce Gibney (Former Partner @ Founders Fund)
Peter Thiel’s CS183: Startup – Class 8 Notes Essay

You can’t really dump co-founders, unless you want to pay through the nose to do so. But hardest to get change is your VC; once they’re on your board, they’re there for good. So you have to choose very wisely.

Mark Suster (Managing Partner at Upfront Ventures)
What I Would Look for When Choosing a VC – Knowing What I Know Now? | Bothsides of the Table

You want a VC who will spar with you but then STFU and let you get on with things. Smart? Sure. But don’t over index on brains. In the end it will be up to you to figure out what to do.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Orphaned Investments – AVC

Of all the bad things that VCs do on a regular basis, and that list is long, orphaning their investments is at the top of my list of bad behavior. Orphaning an investment is when a VC firm decides that it doesn’t really care about an investment any more and stops paying attention. The primary cause is when a partner leaves a firm and nobody picks up coverage of his or her investments. The VC firm says that “so and so” is covering the investment n… (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Orphaned Investments – AVC

So how do you avoid being orphaned? Like most things, it comes down to picking your partners carefully. Ask around. Find out how they have acted in tough situations. Find out how solid the VC’s position is in their firm. You need to reference both the partner and the firm. The person is important but if they leave you will find out a lot about the firm.

Josh Kopelman (Partner at First Round)
What the Seed Funding Boom Means for Raising a Series A | First Round Review

Rather than having a “party round” full of VC firm logos, I believe founders are better served by having investors who will roll up their sleeves and open doors, make introductions, help source and recruit great talent, give feedback on a Series A pitch, and call in favors to make things happen

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
What VC Can Learn From Private Equity – AVC

The main thing I’ve come away with from this several week long rumination on private equity is the value of having very clear lines of responsibility, crisp decision making, clarity of who is calling the shots, and, mostly, a deep feeling of ownership and responsibility for the businesses we invest in. It’s not possible for one VC partner to do this for more than about eight to ten companies, and most VCs take on way more portfolio companies than… (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Product Idea: Reverse Engineering VC Investment Strategies – AVC

Venture capital firms don’t do a great job on their websites of explaining what they invest in and what they do not invest in. Some of that is most VC websites aren’t particularly great to begin with. Some of that is investment strategies change and evolve over time. Some of that is VC firms tell themselves they do one thing but actually do another.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
On Getting An Outside Lead – AVC

There is a lot of signaling risk in all of this. If you are known to be aggressive in offering to lead inside rounds, and you don’t make that offer, then that puts the entrepreneur in a tricky spot. Of course the entrepreneur can say that they don’t want an inside lead and they want to expand the investor base. But even so, smart investors may know.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Sticking With The Struggling Investments – AVC

One of the characteristics of USV that I am most proud of is that we stick with our struggling investments. And we have made a lot of them. We have way more of them than our successful ones that are always cited when we are talked about publicly. I think how you treat your struggling investments says more about you than how many billion dollar exits you have had. You need both to be successful in the VC business, of course. The latter metric defi… (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
On Corporate VCs – AVC

There are two kinds of corporate investments in startups; passive corporate VC arms and active strategic investments.
The former is made by well established investment groups like Google Ventures, Intel Ventures, SAP Ventures, Comcast Ventures, and many many more. For the most part, they don’t “suck”. They can be a good source of capital for your company, they can be supportive investors who follow on when the rest of the syndicate does, and the… (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Doing Business On A Handshake – AVC

But the most important thing in business is the understanding, the look in the eye, the handshake, and the personal trust that comes from those things. No piece of paper can beat that.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
MBA Mondays: Leveraging Your Partners To Grow And Develop Your Team – AVC

The best investors, the ones who have been at it for a while and have great reputations, will have a large network of people they have worked with over the years. Their network will also include people who they want to work with and who want to work with them. They can and do play matchmaker between their network and their portfolio companies. I suspect the partners at USV spend at least 25% of our time on things that would be considered “recruit… (read more)

Mitchell Harper (Co-Founder & Board Member @ Bigcommerce)
28 things I’d do differently next time around — Medium

Early on, raise money from investors who have “been there, done that” — don’t take money from “spreadsheet VCs” because they only understand numbers

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Leading vs Following – AVC

It’s hard to be a great lead investor and a completely different thing than being a well sought after angel investor who can get into someone else’s deals.

Ryan Howard (Founder @ Practice Fusion)
Transcript: Protecting yourself as the founder; Ryan Howard | VatorNews

Upfront, during the second meeting, you want to go, “Who in this room is actually likely going to come on our board?” to get that context so you can start building a relationship with them early on.

Ryan Howard (Founder @ Practice Fusion)
Transcript: Protecting yourself as the founder; Ryan Howard | VatorNews

You want to ask hard questions. You want to ask when the last time they fired a CEO and why. You want to basically get that context. You want to tell them upfront what your expectations of a board member are. If you don’t, they will tell you what their expectations are. Most of the board members are veteran investors and have dramatically more experience than you do, so that can be quite problematic.

Mark Suster (Managing Partner at Upfront Ventures)
Raising Angel Money | Bothsides of the Table

my advice is to stack the odds as much in your favor as possible by taking the experienced money from people who have a reputation for really helping entrepreneurs.

David Jackson (Founder, Seeking Alpha)
VC pitfalls to watch for: trying to fix companies | A Founder’s Notebook

How do great VCs add value? They (i) provide concrete help with hiring, fundraising, and intros; (ii) encourage you to figure things out without pressuring you to expand prematurely; (iii) share what’s working from their other startups; (iv) ask great questions that you wouldn’t otherwise have thought about; and (v) focus on real metrics rather than buzz among other VCs and the media.

Reid Hoffman (Partner & Co-Founder at Greylock Partners)
What I Wish I Knew Before Pitching LinkedIn to VCs | Greylock Partners

Pay attention to whether they are being constructive during the pitch and financing process. Do they understand your market? Are their questions the same questions that keep you up at night? Are you learning from their feedback? Are they passionate about the problem you’re trying to solve?

Reid Hoffman (Partner & Co-Founder at Greylock Partners)
LinkedIn’s Series B Pitch to Greylock: Pitch Advice for Entrepreneurs

How do you know if an investor will add value? Pay attention to whether they are being constructive during the financing process. Do they understand your market? Are their questions the same questions that keep you up at night? Are you learning from their feedback? Are they passionate about the problem you’re trying to solve?

David Jackson (Founder, Seeking Alpha)
Do great VCs need operating experience? | A Founder’s Notebook

In my experience, fantastic VCs have three characteristics: (1) They understand the company. (2) They believe in the company and the team, and express that. (3) They help in tangible ways (they don’t just express opinions)

Reid Hoffman (Partner & Co-Founder at Greylock Partners)
LinkedIn’s Series B Pitch to Greylock: Pitch Advice for Entrepreneurs

The ideal financing partner is a financing cofounder. This is why already-wealthy entrepreneurs raise money from experienced investors for their next startup: they know partnering with angels and venture capitalists is about more than just the money.

Charlie O’Donnell (Partner Brooklyn Bridge Ventures)
VC Value add: Why it probably doesn’t matter, but I try anyway. — This is going to be BIG…

An experienced founder who had been through lots of rounds as both an entrepreneur and an angel investor told me the following: “There are maybe two or three VCs on the face of the earth that add any value to the eventual outcome of a company. So there are really just a few criteria that matter: They should do no harm. They should be able to close the round quickly and without too much distraction. You should like them enough to have them on your… (read more)

David Jackson (Founder, Seeking Alpha)
The most unrecognized and under-appreciated way VCs help startups | A Founder’s Notebook

My experience with Seeking Alpha’s investors: “I’ve got your back and I’m there with you along the way” makes a huge difference.