5 Factors Founders Should Consider Before Choosing Their VC – TechCrunch

Although 2021 is far away moreover, it has already witnessed a record level of venture capital activity in the technology sector. With the larger round sizes announced daily, founders can choose their term sheets, but they need to think critically and strategically about which companies to add to their capitalization chart.

So far this year, we have seen $ 292.4 billion in venture financing worldwide, of which $ 138.9 billion was raised in the United States. For tech companies specifically, capital is only accelerating: In the second quarter, founders raised 157% more capital compared to the same period last year, according to the latest data from CB Insights.

It’s not just that more companies are raising money they are doing it with a higher valuation. Median early stage and Series A valuations are $ 12 million and $ 42 million, respectively, an increase of 20% to 30% from 2020. This can be attributed in part to the increase in M&A exits / activities in the technology sector, a record number of IPOs and widespread optimism around technology, as well as low interest rates and liquidity in the market.

Good CVs that are aligned with a startup’s vision create more value than the dollars they bring in.

At a time when we are witnessing record venture capital activity, founders should go back to basics and focus on fundraising principles when determining who sits on their limit chart. Here are some tips for founders in that direction:

1. Value> valuation

Good CVs that are aligned with a startup’s vision create more value than the dollars they bring in. Typically, such value is created through a few different functions (product, sales, domain experience, business development, and recruiting, to name a few) based on the backgrounds of the fund’s partners and the makeup of its limited partners. (investors in the risk fund).

Additionally, the right VC can serve as an authentic and objective sounding board for CEOs, which can be an asset as a startup navigates the uncertainty and typical challenges that come with scaling a young company. As founders evaluate multiple term sheets, it pays to think about whether they should optimize for the venture capitalists who offer the highest valuation or those who bring the most value to the table.

2. A two-way street

Running an efficient fundraising process, in part, involves holding venture capitalists accountable for their own requests for diligence. While it is unfortunately common for venture capitalists to request a large amount of data in advance, startups must share information after assessing investor intention and appetite.

For each request for additional data, the founders are within their rights (and should) check with their prospective investors where the process is and obtain indicative timelines for moving forward with the next steps. Mark Suster saying is better: “Data rooms are where fundraising processes go to die.”


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