you want to raise venture capital to fund your new company and your
great idea, plan out your vetting process first, because all VCs are not
the same. Some are really helpful, but some are horrible and damaging
to your company.
Pick someone who has the same Vision and Values as you. You are
(hopefully) in your venture because you believe you can change the world
(if you are doing it to get rich, stop now, because you don't get rich
in the startup world by trying to get rich, you get rich by building
something) and it's very important your investors want you to change the
world too. There are many tough moments of truth when building a
company, and none more so than when you get an offer for your company
before you think you are ready--before you have built the strategy and
value that you believe is possible. That moment is when you find out
whether your investor truly shared your vision on how to change the
world or was just telling you she did.
2. Pick a partner who can do heavy lifting for you when you need it. Great venture partnerships have a rich, deep network to help you recruit, develop partnerships, find initial customers, manage sticky HR issues and even find office space. Andreessen Horowitz are changing the game with the amount of help they give their ventures. They have teams of people to help you: recruiters, sales people, marketing people and they'll get you started with office space. Ben Horowitz' book, "The Hard Thing About Hard Things," is packed with advice on building a company and is a good example of the type of advice you can get from a great VC who's built their own company in the past.
3. Avoid the money-based VC who's motivated by running a portfolio--often former investment bankers. Find someone who walks the talk and truly builds great companies. If you can, find a VC who has been doing it for more than 10 years and who has a great track record--and interview their CEOs--or find one who's been a CEO, built a good company and taken it public. When you work with someone from a leading firm like Benchmark, Oak, Sutter Hill, Sequoia, Greylock or the new kids on the block, Andreessen Horowitz (and they've been a CEO or a VC for many years), you get access to a level of wisdom and advice that you simply won't get from the a small firm with relatively inexperienced investors.
4. Don't get greedy. Yes, valuation and how much of your company you need to give away is important. But it is just as important that you get great advice and that your management team and employees make money too when you are successful. If you get greedy and aim for the highest valuation, a couple of bad things can happen. First, you can end up with investors who don't have the experience you need (one of my friends has a Saudi Prince as an investor--very difficult to get alignment on strategy), but second, you can find yourself in a situation with such a high preference and threshold valuation on your company that unless you are the next Facebook, only your investors will make money when you sell (and maybe not even them). There are many hot startups in San Francisco today who will face this problem when they try to get to liquidity. A great VC will coach you through this and not be greedy either.
5. Pick someone you enjoy being with. Building a company is an intense, emotional experience. Most companies take many years to mature and if you are going to meet with your board every month for 5 years, and at dinners and strategy discussions in between, it certainly makes the journey more fun if you enjoy interacting with them.
Of course, in the end, you do need to get funded and you may need to take what you can get, but if you have the chance to be selective, the right investor is more important than the highest valuation because you'll build a better company and change the world (and make more money for you, your team and your investors along the way).