Founders: Choosing the Right Investors

How do you, as a company, and you, as a CFO, do due diligence on the investors, on the VCs? If so, how do you go about that?

Yes; I think it’s always about supply and demand. Ultimately, it’s all a marketplace. You need to have, not only a good business, but it’s also very important to have the right investors for your business. Investors can also make or break your business, depending on how they provide the guidance, how they run the board and what their expectations are. As I mentioned, there is also supply and demand. If you are a strong business or if you are in a strong position, then yes, you would definitely like to choose an investor which, rather than the evaluation at that point in time, I would rather go with a VC who you are much more comfortable with, who has a strong belief in your business, who you believe could be a long-term partner, to your business.

That would be the best way to think about it. Often, what happens is, yes, you raise money in the first round, with your investor. In the following round, it’s always better for that particular investor to invest again in the business. You can only do that if that particular investor is thinking more of the long term and you have built up a good relationship with that particular board member.

Also, there are often a lot of ups and downs in the business and you don’t want to be bothered by the investors who are much more of a short-term thinker and disrupt your thought processes in running your business. It’s very important not to go just for the valuation when you are raising capital. Obviously, if you only have one VC who believes in you and you definitely need capital, then that’s it. But it’s better to wait, and get the good investors on the board, who understand the business, who you could consider the thought partner and who is a long-term believer and investor in the business.