Usually investors are the ones who carry out the due diligence for the potential target company. It's not rare that an entrepreneur do not impose any questions for the investor. This is a clear mistake. Even though you might not have that much choice you still should be very careful and evaluate the potential investor(s). If nothing else you're showing active interest for the VC and weighting their competence and match for your case. Should not harm the negotiation situation...
Private equity injection is like a marriage. You're bound together for the good and bad times until the exit will set you apart (usually in 3-5 years). Here's a short list of items one should consider when evaluting the VCs candidates:
- fund focus (their expertise in the field)
- current target companies (any competitors / conflicts of interest)
- fund life cycle and conditions
- fund's investors and their backgrounds
- investment terms and size (follow up investments as well)
- type of investor (financial, 'smart money' and how)
- personal & fund history and references & success stories
- decision-making and management style (fast / slow, passive & participative, authorative etc.)
- motives and interest (why they want to make the investment)
- personal chemistry
- network (resources, clients, VCs, people etc.)
Those were just some examples. A seasoned entrepreneur might consider other factors as well. Who would be the most beneficial investor for my purposes (next rounds, board seats, influence power etc.) and hidden agenda...
Posted at August 10, 2004 06:15 PM