Mittwoch, 15. Oktober 2008

six steps to venture capital: part 2.1 fund selection

after being sure, that venture capital is the best choice (see “six steps to venture capital: part 1/6 on funding motivation) , the next step is to select which funds to approach.

2) fund selection

the best resources out there to find professional risk capital are the european venture capital association (evca) and the local venture capital associations, like avco in austria. on the evca webpage, all the national venture associations can be found.
Other sources are local economic newspapers, blogs (as can be seen in the blogroll, with lists like here), or the webpages of known venture backed in general, like jaja.

based on that basis research, a list can be compiled from all the vc out there, meeting the requirements of

1) investment period,
2) geography,
3) focus,
4) experience,
5) cash available,
6) fund exit horizons and
7) references.

the result will be an “a-b list”. “a” for your hot hits, “b” for the maybes.

1) investment period will be looking for early stage, seed funding focus or even incubators. funds having no investments and no mission to do so will not make it on the list. funds having no early stage investments but write that they want to get into, are on the b-list.

2) geography
most investors stay within their local area. looking at their profile and their portfolios will tell that easily. if for example a uk fund has no investment outside of uk, chances are low, that they will invest e.g. in romania at all. if they are otherwise a perfect hit, make them a b-list candidate. we will see later why those are needed as well.

3) focus
there are different investment philosophies existing. funds can focus on investment stage or selected industries (horizontal or vertical). it is important to be in the funds focus, otherwise an application means wasted time.
if a fund has similar companies in it’s portfolio, for example three other software companies in the field of telecommunications, then that is an a-list candidate. because this fund should have an deep understanding of the technology, the business models, the market addressed. just to dig deeper on one point here: the technical due diligence will be faster and more accurate, as the funds typically use their portfolio companies to evaluate potential new investments.

coming up in the next post (six steps to venture capital: part 2.2) are the relevance of fund and investment manager experience, why cash matters and checking out the investors.