Two years ago, I took part in a reverse VC-startup pitch day at Aol in New York. Instead of the usual format, VCs pitched startups the benefits of their respective firms. I spent two weeks beforehand thinking about how to pitch effectively.

Unlike startups who are building technology businesses, venture capitalists build services businesses. In some sense, VC sell a commodity, money. All money is green. Like any service business, we must differentiate on three parameters: relationships, expertise in an area/portfolio, and brand.

First, VC is a relationship building business. It’s our job to know as many of the right people as possible and help them as much as possible. If we contribute positively to the ecosystem, then the community will reward us for our value and entrepreneurs will want to do business with Redpoint. And helping entrepreneurs over extended periods of time is the best way to compete for business. Ultimately, our relationships with individual entrepreneurs are our biggest asset.

Second, expertise/portfolio is the most tangible of differentiators across firms. Everyone has a “wheelhouse”, a “power alley”, some area they know cold because of experience. I’m really keen on SaaS businesses and consumer/ecommerce businesses.

Third, brand is the most intangible of differentiators.  VCs can lend their brand to startups to help hire, build partnerships and raise more capital. Branding is the differentiator VCs have historically under-invested in. Venture capital used to be a sleepy cottage industry. Not any more. We’re all competing for mind share and branding. Each firm will position itself differently and be much more aggressive about telling their stories in the press.

I ordered these parameters in an explicit way. If I were to raise capital, these are the decision criteria I would use to select the firms to speak with. Relationship is the most important. You’ll be in business with your VC for 5 to 10 years. It’s best if you get along well and they have been helpful to you in the past.

A VC is a co-founder you can’t fire – they own about the same of the company and have an equivalent to disproportionate say in key matters because of their board seat. Take the same care to hire a VC as you would hire a co-founder. Reference and diligence him or her. Speak to CEOs who have worked with them and understand their expertise, number 2, at a deeper level. Look for people who have a consistent track record of helping their companies through thick and thin. Anyone can be supportive when things are going well. It’s the true team player who supports you during the hard times. Also seek people who are honest and straightforward. Candor and trust are the basis of every relationship. It’s no different between an investor and a founder.

If I ever pitch you on why you should choose Redpoint, you’ll hear me describe my way of thinking of the business – what I’ve said above. And then I’ll tell you, like I did in my VC pitch, the best way to decide if Redpoint is a good match for your company is to speak to my portfolio companies. After all, the proof is in the pudding.


One thought on “What to look for in a VC

  1. Tom, Good read, and I agree with much here. Do you ever visit AVC and see what Fred does in terms of transparancy – I think it is a great means to strengthen VC “social proof”.

    So for example – do you invite your CEOs or team from investments to comment / Guest Post ? – I think it might encourage better matched deal flow and “open doors”.

    Certainly I never took a job until I had some BATNA and when lining up VC it will be the same. So by lining up your successes you are making statements and making it easier for me to take your message with high credibility. IE if your clients of record confirm you are “good guys”, you make intros, you help and are flexible and etc, then the dilution you represent is far “less expensive” than money order for equity and fare thee well”

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