In a recent interview with Inc. magazine Puretech Ventures' David Steinberg highlighted the importance of creating a successful relationship with the perfect VC for your business and suggests that VC funding may not always be the best approach.
Timing and reasoning is everything when choosing to seek out VC funding right down to which VC you work with. Perhaps, most importantly of all, is the timing right for your business? If the level of funding you require is around £100k-150k then “you should really look to cobble that together through angel investors, or your rich friends. Depending on your industry, you can also potentially get grants and loans,” explains Steinberg. You should be aiming to raise just enough to prove your concept, “before you go to a larger investor such as a traditional VC. This approach makes it more likely you'll succeed in fundraising and increases your valuation if you do,” says Steinberg.
According to Steinberg; “It's most important to find a good match of people and a fund that has experience working with companies like yours,” elaborating with “Personality match is very important because the VC is going to be active in your business, especially if things don't go exactly as planned.” Steinberg believes that in the majority of cases; choosing a VC is going to affect your business “more than someone you hire” as their contacts and experience could potentially “make or break the company.”
Another aspect to consider is the lifespan of the funding deal. “You want to be sure that the time horizon of your company matches the lifecycle of the fund, or you may be in a situation where the VC is under pressure to exit or force you to move quicker, for example, or doesn't have sufficient capital in reserve for follow-on funding,” reinforces Steinberg.
From Steinberg’s advice and the words of Duncan Malcolm, founder of Saild, in our recent post about The Sad State of The Startup Pitch it's becomes clearer that venture capital is something entrepreneurs shouldn’t just automatically be seeking out and actually should be sought for a specific and strong set of reasons. There are significant trade-offs, sacrifices, compromises and risks and only when you’re sure the benefits outweigh these when raising venture capital, and decide if you are actually one of the entrepreneurs that, at least for the time being, should consider other funding options.