5 Tips for Evaluating Your Best-fit VC Partner

Expansion-stage SaaS companies must make many critical decisions in order to survive and thrive. One of the biggest is choosing the right investor. The SaaS/investor relationship isn’t one to enter lightly. In some ways, it’s almost like a marriage—a long-term commitment to working together closely. And just like a marriage, you want to enter into an investor relationship only after you’ve done your due diligence. While gut instinct has its place in the startup world, when it comes to VC firms, you want to make absolutely sure that there’s a good fit and a shared philosophy.

My work helping high-growth, pre-IPO companies navigate their way through the process of scaling their businesses has given me real-world experience identifying and vetting VC partners. Though I touch on many aspects of the journey (from go-to-market strategies and product roadmaps to structural organization and leadership assessment), I maintain a heavy focus on helping startups develop strong partnerships with the right VC firms. Here are just a few high-level insights that I’ve collected over the years.

The VC Partnership—Not Just About the Money

One of the first things to know about VC firms is that the capital is the easy part. What you really want to know is how else a VC partner will provide support.

All across the venture capital landscape, you’ll hear carbon copy pitches that promise insider knowledge and access to a wealth of resources; but nine times out of ten the reality of what’s behind that promise is nothing more revolutionary than basic executive networking. And while executive networking, done right, is valuable, it doesn’t actually take work off your company’s plate.

When you’re a growing SaaS company, you need more than money from your VC partner. You need someone who will actually step up and deliver tangible support in areas like marketing, pricing, hiring, sales enablement, human resources, and so forth. You want a partner who has the ability to get some of these things handled so you can stay focused on product market fit, revenue growth and other mission-critical challenges.

Most of the companies looking to establish initial VC relationships don’t have in-house support teams with deep functional expertise across a wide range of disciplines, and they haven’t reached the size or scale to warrant hiring the operational resources needed to build out company infrastructure. This is why it’s critical to make sure you can get access to this kind of support through your VC partners. Very few VC firms offer this level of dedicated, hands-on support, but that doesn’t mean you shouldn’t insist on it.

Another non-financial asset that a strong VC partner should bring to the table is a comprehensive network of experts and consultants. You will undoubtedly run into numerous instances where you need the input of an expert on a particular topic, and you can waste a lot of time trying to find the right expert on customer success, lead gen, CRM, or whatever roadblock you’ve encountered. A VC partner with a strong extended network cannot only quickly put you in touch with an expert, they can vouch for the caliber and quality of that expert. This will save you all kinds of legwork, meaning it will save you time and money.

VC Partner Evaluation—5 Steps to Get it Right

Once you’ve identified a VC firm that brings all the right stuff to the table, it’s important to remember that relationships are built between individual people, not corporate entities. Before you say, “I do,” you want to get to know the specific person or team you’ll be working with on a regular basis.

I have five core practices for making sure you’ve covered all the evaluation bases:

Spend time. When you know exactly which partner you’ll be working with, take the time to really talk with them in depth so you can get a sense of their personal values and working style. By learning what makes them tick—both on a philosophical level and a personal level—you’ll get a much better sense of what it will be like to work with this person on day-to-day issues.

Do your research. In addition to talking with the potential partner directly, it’s equally important to do your research with other companies who have worked with the individual. Look at the investor’s past patterns and see what kind of story they tell. Does the strategy align with your own? Does the pattern indicate pursuit of super-fast growth at all costs for a quick exit, or a practice of giving companies the time to grow and mature? Either approach can be right depending on the situation; you just want to be sure there’s no disconnect with your own objectives.

Ask for references. You also want to go ahead and talk with a few of the CEOs who have taken investments from this firm and/or individual. Think about it like vetting a new C-level exec and do a thorough check as a matter of course.

Clarify roles. Just like in any business relationship, one of the keys to success with a VC partner is establishing an upfront understanding of who is responsible for what. When people overlook this step, they can find themselves in awkward situations when assumptions lead to mixed signals. Getting clear on roles will help you avoid any unnecessary friction that can hold up your growth plans.

Review specific scenarios. Finally, instead of relying on generalities, engage in a little role playing. Have a frank, in-person conversation with your potential partner about how they will help you solve certain challenges and conflicts. Do they see their role as giving advice, dictating strategy, bringing in reinforcements, some combination of all those options? Where do they think their jurisdiction starts and ends? It’s easy for people to explain in the abstract what they do and how they partner with a CEO, but when presented with a specific scenario, you’ll often uncover other answers or gain new insight into exactly how things might go down in a real-world situation. And, just to reiterate, have this conversation in person, not over the phone. You can hide a lot of nonverbal cues when you’re only communicating voice-to-voice. Sit down across from each other so you can take in the full reaction.

Simple But Powerful

While this advice might sound like common sense or standard due diligence, I promise you that it’s very powerful when put into action. There is no substitute for doing the actual work when it comes to assessing a potential partner. The key is not to give in to the common temptation to hear what you want to hear and see what you want to see. Don’t gloss over questions or discrepancies. Pay attention to any red flags that pop up. Listen to your instincts, but don’t skip any steps in the process. This isn’t a decision you can make lightly, and it’s not one you want to get wrong.

Jeff Diana
Jeff Diana
Chief People Officer, Advisor

Jeff Diana is the former Chief People Officer at Atlassian. He currently works as a high growth consultant helping pre IPO companies on how to successfully scale their businesses from go-to-market design to product roadmaps to senior leadership assessment and much more. He is focused on partnerships with key VC firms, CEOs, and other world class HR consultants to solve the challenges of hyper growth and to build incredibly successful businesses.
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