Venture Capitalist (VC)

VCs are the most important players in startup financing. Based on a long tradition in Silicon Valley they spread around the world over the last few decades. They are positioned between business angels who finance the very first phase of startups and Private Equity companies which come in once a company generates substantial revenues and starts to get profitable. 

Typical VCs will invest from a few million to a few ten million USD over the lifetime of a startup. Thanks to massive funds raised some of the big VCs can keep participating in funding rounds up to IPO. 

Pros

VCs can be invaluable partners of a startup. Most are founder friendly, reliable and supportive. They frequently take board seats, open their networks and provide support in strategy, recruiting and fundraising.

Cons

While being rational, VCs can be tough. If things don’t go according to plan there will be pressure to do management changes up to replacement of the CEO.

Recommendation

Unless you raise less than USD 500k or more than USD 100m you will want to have VCs in your long list if any fundraising round. Phase 6c describes the different options in detail.

Side note: Understanding the hierarchies of VC firms

Many founders do not realize that it makes a huge difference to whom you talk within a VC firm. Is it an entry-level person who is trying to get smart about your industry segment? Or is it the managing partner who wants to make sure they get the deal?

Unfortunately it is not so easy to understand the hierarchies of a VC. While some do not communicate titles at all, others use “well sounding” titles such as “VP”, “Director” etc. for any person who has worked with them for longer than a week.

Here are some rules of thumb:

  • Partner is usually the top level (sometimes further split into Managing Partner, General Partner, Senior Partner etc)
  • Principal is typically the second highest level
  • People at the entry level may be called “Investment Director”, “Investor”, “Associate” or something like this

If you check the team section you will usually figure out the level of a specific person.

So why is this important? As in any company, decision power is correlated with level of hierarchy. So while talking to a junior person is not per se a bad thing, make sure that you quickly get the attention of a partner. If this does not happen you may be supporting the VCs internal industry research, which may be interesting for the VCs next blog post but not to get your startup financed.