To add to the existing dialog, I would also mention to a CEO looking for funding, and wondering how to choose a VC that:
- VC groups have they own lifecycles; a given VC fun has a life of 10 years, and an investment period of 4 to 5 years. It’s important to understand where a group is in it’s cycle, how many years until the end of the investment period, and how many years until the group will go back to it’s investors to raise a new fund. This will have a significant impact on the risk-tolerance of the general partner group, and its patience.
- VC manage they portfolio risk as a whole, a new investment will be a new element in the existing portfolio, and the general partner behaviours (and the pressure of its partner during the regular quarterly portfolio review) will be a function of the overall health of the portfolio. It’s important to due-diligence the overall portfolio, and get a sense of how well is each existing investment doing.
- VC have long memories, in the last 5 years, we have each build a list of A-guys that we trust and value, and will do deals with in the future, and of C-guys that we would not do the next Google with, even if we could. You should get a sense of the general partner relationships, and what open or closes the addition of a new investor to your company.
-Board have a maximum size (in my eyes 5), and before adding a new investor, and a new board member, you should thing about who you will remove to keep your board size at the right level and avoid inflation. I have sat on board of 7 or 9 members, and they are a recipe for trouble, as chance for divergence and dysfunctional behaviours are then too high.
And if/when things will go south; you can always practice the art of firing you board members, according to Jerry Collona...