2 Practical Steps for Picking the Right Investors

Venture capitalists can be intimidating, especially for a person, a group of persons or an organization that is jumping in the business bandwagon for the very first time. Attracting venture capital is in itself a humungous task given the lengthy process associated with it, not to mention the stringent measures that VCs expect startups and small businesses to abide by. It is time-consuming as well, and for all efforts that have been exerted, many who are new to the VC hunting frontier may be making the wrong targets or taking the wrong steps all along.

During those times when business owners encounter setbacks with finding the VC to fund or expand their small enterprise, the frustration can take a toll on the business. Many entrepreneurs may not meet deadlines for launch or growth and will have to take a step back to re-evaluate their strategy.

When these situations come up, many questions will have to be answered to determine where the process can use some tweaking: Is it time to make adjustments on the pitch? Does the business plan sound too ambitious, or does it lack the details VCs are looking for? While effective in determining what else could be improved, assessing what could be wrong all along does eat up a lot of time.

Many CEOs and entrepreneurs take the conventional route by having a pool of VCs to ease the hunt for the right small business investors and simplify the funding process. With all these essential courses of action, however, the question begs: Are the VCs being targeted, in fact, the right investors?

Ilana Stern, who founded Weddington Way and now its CEO, successfully earned the confidence of investors for her online wedding shop. Successfully raising $9 million in Series A round venture funding, Stern emphasized that it was important that she knew how “early-stage VCs are more likely to be involved in developing a company . . . [and] later-stage VCs are more likely to be involved in growing the company.”

Talking to the American City Business Journals/Bizwomen, Stern said the entire process she implemented toward successfully finding the right venture capital was essentially hinged on two main important strategies.

[Stern] made a list of the non-negotiable traits she needed in a VC.

Before entertaining any options, Stern decided the investors needed to be:

Authentically passionate about ‘disruptive’ (unconventional) e-commerce models and consumer-oriented businesses

Financially committed to other startups in the e-commerce space

Well-known for being supportive during the ups and downs of a startup’s growth

Committed to building the framework of a business

Quick to help with even minor tactical decisions

“Some of it is just asking high-level questions (of the VCs),” Stern said. “What they see the role of the board as, what their sweet spot is, what they like to get involved with, what their core competencies are, where they like to intersect with their companies.”

[Stern] called all of the VC’s references — as well as the CEOs they didn’t list.

When deciding if a potential employee is a good fit for her company, Stern places a lot of importance on the interpersonal connection, what it’s like when she meets with the individuals. But perhaps even more important, she says, is the reference calls.

“When I’m doing reference calls, it’s not because I’ve already decided to hire a person and we’re just checking the box,” Stern says. “The reference is part of the decision process.”

The whole process required about 15 calls and a half a week’s worth of time. She wanted to know everything: Are they willing to get involved enough to suggest everything from independent board members to SEO vendors? Are they the type to roll up their sleeves and make it happen? Do other startup founders respect the VC executives they work with?

Photo by private-equity.pl

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