9 Rules to deal with VENTURE CAPITALISTS

Well most of us have already defined and talked about what is venture capital and entrepreneurship, I have rather opted to highlight practical aspects venture capital and for those who would like to initiate a new business will get more benefits by reading this. This article was originally published here and talks what actually one should know when dealing with Venture Capitalists and the dos and don’ts before pursuing a new business or making changes in already exiting one. I have tried to present its summary to extract relevant points below,

#1: When Venture Capital is good and when it is bad.

“Is venture capital a good or bad thing? Well it is purely depends on the circumstances It is bad when you don’t need capital. An entrepreneur doesn’t like to lose its autonomy by selling part of his own company to raise capital so it’s a big deal when someone does it. Think before making this decision and let the right time come when you actually need to take this step. So it’s all about the time and situation which makes an entrepreneur’s decision bad good when it comes to raise capital.

# 2: Realizing the need of Venture Capital.

It is very important to realize what kind of business one has instantiated and whether it need venture funding or not? One of the examples might be of phone network (let’s say making acceptable-quality voice calls on the untamed Internet which was common back in 90s) which involves capital for getting critical mass. You need to need to know the level and scope before going for a big borrow or public funds because then again you might be taking huge risk at the very start. One can try to finance it on his own capability and available funds to gradually progress towards bigger funding opportunities

#3: Opt for it as late as possible.

Never go for taking venture capital when there is no need of it. It is also important to have a plan or homework ready before taking offers from VC. One may get offers from venture capital people may be because of the publicity or your initial success that attracted the VCs to offer their support but it is important to analyze the need of it first. Normally if one passed through his startup phase of a company, he may not need it but even then halt them for a period instead of rejecting and go with a new business plan or make some changes if you want to avail the opportunity.

#4: Knowing about VCs.

It is significant to research and invest some time to know about VCs you would like to go with or if they are coming themselves to offer you their support. There may be some of them who don’t have any idea about the business you do but still willing to invest may be because of your references and track record, but dealing with them would involve a risk factor sine they won’t be having any idea about the issues and problems of this business because of zero experience in that domain. So going for an experience VC and choosing a right one will work out. The right VC will himself take initiative and will monitor the progress and would be helpful to broad his investment if he will find it beneficial.

#5: Keep a check on VCs strategies and decisions

VC may cut down or sell their shares if he will see no progress and you are failing to convince them. It is better to understand this before getting a shock. So you need to have your performance check and also need to know how down or high will influence your VC to take any decision no matter positive or negative.

#6: Knowing VCs previous and future references.

A VC will always monitor and learn about your company before making an investment. It is equally important to do the same at your end. One has to know where the funding company has already invested and what their plans for future investment are? So getting a complete life history of it and about the people involved in it will prove a great asset for you

#7: Trust Factor

Trust factor is very important when dealing with the VCs. Opting for a firm that doest gem well with you or you may don’t like their support or anything else will always involves a risk of losing them eventually or that the fear factor will keep haunting you every time.

#8: Your VCs reputation can benefit your company.

Your customers might be attracted more because of the VCs involved in your business rather than for your own efforts. It is not happy to hear this but it is not bad at all. What all you need to do is to make your VCs happy and involved them in your activities to float positive vibes to those customers. A good and famous VCs having business experience that you are in are always better to be pampered since they know the markets and existing customers and so as customers know them, so if customers are coming because of them, you don’t want to make them unhappy.

#9: Dealing with Limited Partners.

Limited partners are those who may directly or indirectly purchase you stock shares form the VCs that have invested in your business. VCs do provide occasionally a chance to know about them by inviting some of its shared companies. This is very significant to know about them and to have good relations with them so that when VCs are going to distribute share to them, they can purchase your shares to further invest in your company and that will be possible only when you have good relations with them.

Naveed Nizar Ali
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