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VC Due Diligence for Startups

Choosing an investor based on price is like picking a romantic partner based on looks; your happiness won’t last. It’s hard for entrepreneurs to turn down money, a point that Kegan Schouwenburg, Co-Founder and CEO of Sols described at our last Founder’s Guide panel about raising money. Both Sols and MakersRow, whose Co-Founder Tanya Menendez was also a panelist, explained their learnings from researching the right investors to work with.

We also had two VCs on the panel, Elodie Dupuy from Insight Venture Partners and Keegan Forte from Bowery Capital, who echoed the entrepreneurs’ sentiments that startup founders should run their own due-diligence and be picky.

All agreed that investors can be just as guilty of overselling and under-delivering as the startups pitching them. For MakersRow, the biggest obstacle was finding someone who knew the manufacturing market; which wasn’t easy, but they’re happy to have focused on raising “strategic money.” They obsessed over researching investors with as much energy as they were putting into the product itself.

Not enough entrepreneurs are diligencing their potential investors, because they’re happy that someone is willing to fund them. The problem with this is that the relationship doesn’t end there. In many cases, you will be stuck together and they will have a major impact on the success or failure of your company. Moderator Kelly Hoey, CMO of Cuurio, suggests you think beyond the money to whether that investor can be helpful, and how.

Here are some tips for startup founders when choosing an investor:
  • Is there a personality fit, and do you enjoy spending time with this person?
  • Get references from CEOs of companies in their portfolio
  • Speaking with mutual connections and other investors can give you further insight that you’d be able to get from their portfolio
  • Develop relationships with other members of the firm
  • Set clear expectations and goals

Check out our panelists in action!