Finding Funding: Think Fit First

Finding Funding: Think Fit First

When it comes to choosing VC funding, founders often look to get the biggest cheque from the biggest name they can find at the best possible price.

But, like any relationship, your partnership with your chosen VC isn’t just about numbers. It’s about chemistry, long-term compatibility, and shared values.

Here’s how to find the right VC funding fit.

VC Funding 101

Before we look at the qualities of a good founder-fund fit, it’s worth remembering how VCs work.

VCs (venture capitalists) get money from investors, called Limited Partners (LPs). They then invest this money in exciting new businesses. In exchange for the money, the business founder gives up a share of the control of the business – called equity.

That equity becomes valuable at an “exit event.” That’s when the company is sold or is listed on the public stock exchange.

Every VC takes a different approach to finding businesses that they think will generate returns at exit. They don’t just invest in any business: instead, they become experts in a specific industry or sector, and then invest a specific amount in those businesses at set stages, often in specific parts of the world. So, for example, a VC might only invest between £1 and £2 million in early stage fintech companies in the UK.

This approach means VCs become experts in spotting a particular kind of company – and that means they can offer much more than money. They can give founders priceless advice on how to succeed in their chosen space and connect them to the right people to make that success possible.

That’s why it’s so important to find the right “fit” when it comes to VC.

But before you get there – have you considered whether or not VC is the right choice for your startup?

Equity in exchange for expertise

Money, expertise, and great connections – it can seem like VCs have everything a founder needs, but their support comes at a price.

Raising lots of money means you give up a lot of control in the future of your business. Unlike bootstrapping (building a business from scratch without attracting investment or with minimal external capital) or getting funding from friends and family, bringing in professional investors means you often end up giving Board seats to a new team, and although they can help steer you towards success, they’ll also demand results.

The goal is to trade the right amount of equity for expertise you can’t get anywhere else.

So how can you make sure you’ve found the right fit?

Finding founder-fund fit

It’s never too early to start narrowing your search for the right VC for your business.

A platform like Pitchbook is a good starting point. For a small fee, you can filter VCs by industry, average cheque size, region and how active they are. From there, a quick LinkedIn search can help you reach out to the relevant person to secure a meeting.

It’s also worth chatting to their portfolio companies to find out what the working relationship is really like. What does the VC value? How do they behave when there’s a setback?

If there is potential, you cannot underestimate the importance of chemistry in the first few meetings. Does this feel like a team you can work with who can help you reach your goals? And do you feel like you can deliver what they’re looking for?

First impressions matter. In the first meeting you need to be ready to answer questions about your business and technology, but also the impact you can have on the market. Remember that even though you’re looking for a partner, the VC is looking for a business that will deliver their target return on investment.

It’s a two-way street

VCs can accelerate your business’s growth, but only if they share your values and interests.

While it may be tempting to try and land one of the big names, it’s far better to do your research and find a fund that offers you the advice and network you need to succeed in your space.

Remember, you’ll be working together closely for years, so make sure you’re going to have a good relationship: this partnership could be the difference between failure and success for your startup.