In the world of venture capital, vetting and due diligence is part of the process. Venture capital firms have a list of things they are looking for when it comes to potential investments. VC firms often pass or do not engage with a company if it is not a good fit. Entrepreneurs should be doing the same.
Vetting potential investors is critical. Founders should take time examining investors and researching who would make a good investor in their company.
For many entrepreneurs, it can be overwhelming choosing the correct investor in a landscape that is plush and filled with options. What makes a good investor and how do you find them?
The Zane Venture Fund investment team shared their advice on how to choose the right investor.
Shila Nieves Burney, is the Founder and Managing Partner of Zane Venture Fund. Shila is an instigator and a catalyst who instigates critical changes in the capital universe and speeds it up with her drive, connections and mentoring. Her mission to champion underrepresented founders rests on the foundations she has built throughout her career. She spent a 20+ year professional career working closely with leading organizations and exceptional talents to create solutions that address disparities through investment in human capital. After spending a year sourcing investors for a startup that culminated in a $5M term sheet, mentoring and advising founders of color, Shila was able to see firsthand the challenges diverse entrepreneurs face getting access to capital and the resources they needed to grow and scale their companies. She founded Zane Venture Fund, a seed fund that would invest in underrepresented founders with the goal of closing the funding gap and generating high returns for investors, thereby closing the gap to generational wealth, and Zane Access which provides early-stage companies led by diverse teams access to cross-functional experts, resources, best practices and customized content critical to accelerating growth.
- Understand your investor’s personality. “I am very hands-on, but take a step back at a certain point. Founders need to do the work. I am not going to tell you how to run your company. I am here to mentor you and my personality is very encouraging and firm. Not everyone is this way. Determine what personality you work best with and seek them.”
- Choose an investor who is knowledgeable and creditable. What types of companies is this firm investing in? What industries do they primarily focus on? What regions do they focus on? Are they showing up in the areas you need them to? What is their background? Are they engaged in the ecosystem you are a part of? How do they treat their founders? Do they have your best interest in mind? Do they want YOU to succeed? “Do your research, analyze their website and Twitter. If they say they focus on diversity, is it obvious? Does it start at home? What does their team look like? Our portfolio companies seek us out because that is our focus. We not only say we are investing d in diversity, but our investor team is also diverse.” Find an investor that has the necessary experience and expertise that would fit your company’s focus.
Sig Mosley, the “Godfather of Angel Investing,” is Partner Emeritus with Zane Venture Fund. He has spent most of his career investing in profitable startups that have turned into successfully exited companies. Sig currently is the record holder of the largest Southeast Venture deal with the $5.7 billion acquisition of Tradex by Ariba. In addition to Zane, he is the Managing Partner of Mosley Ventures and serves on the board of directors of 16 private companies.
- Check references. Investors do a lot of reference checks, you should do the same on potential investors. “Talk to CEOs they have invested in. How they will work with you if problems arise? Talk to one or two CEOs of companies that did not do well. How did the investor respond?”
- If you already have an investor and are adding another to the team, understand the dynamic they are bringing to the team. “It is not the entrepreneur’s job to try to balance and keep the peace between the investors.” Be thoughtful and intentional with who you bring on the team.
- Understand the value of the investor. What connections, knowledge, and resources does this person or group bring? Will I be able to learn and grow from this connection?
Stefanie Diaz, Partner of Zane Venture Fund, began her career in a pharmaceutical startup that she helped grow to over $100 million in ARR in 4 years. She runs screening and due diligence for a globally recognized angel investor group, TiE Atlanta Angels. Hypepotamus named her an Atlanta Startup Wonder Woman. Stefanie also hosts a podcast, She Conquers Capital, where she amplifies the voices of diverse female CEOs, venture partners, and angel investors. In addition to all of the positions above, Stefanie is Latina, a mom, an entrepreneur, a dancer, and considers herself a financial whiz.
- Find someone who understands your vision. “Founders should look for someone who has deep knowledge of an industry or built a similar business model. Someone who has the reference points of where you are trying to go and can guide you on the next steps.”
- Find someone who understands your lived experiences. “You want someone who can say I see you, I appreciate you.” “Initially you may feel like a fish out of water, but finding the right investor who understands where you are coming from makes all the difference. “A VC firm fit for me would be that they understand how being raised by a single mom, growing up in Puerto Rico and Spanish being my first language have shaped who I am as a person and can find a connection with that.”
What they all agree upon:
Get to know your potential investor personally. It is a relationship. It is very important to find an investor you can work with. Choose someone who shares your vision. The right investor will believe in you and have a shared confidence about the direction you intend to take. YOU are the selling point. Take them outside of the office and understand if you truly like this person/ these people and want to be around them.
And if you are no longer feeling it, be ready and able to end relationships quickly and without guilt. Not everyone will be a fit or remain a fit. Sometimes, they do not share the vision or want to take the company in a direction that is not authentic to your story. It is okay to walk away.
Understanding the options for funding a startup should not be difficult- but does require thorough vetting. And, while not all investors are created equally, it is not a zero-sum game either. There are many options to choose from and choosing the right investor is vital to growth and future success. Whether you choose by location, their expertise in a certain sector and/or their ability to help you get to the next stage, the right investor is out there waiting for you.