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How to spot the best VC fund for your startup?

June 22, 2022

Published by Daniel Tomov, Founding Partner at Eleven. 

The number of VC funds investing in early stage companies is growing so despite numerous rankings out there on which the best VC is, you are probably still looking for the VC fund that will be suitable for your startup. Like in love, most often than not the beauty is in the eyes of the beholder, right? 

The good news is that there is the best VC fund for the current stage of development of your startup and based on your current needs. For example, if you are in an early, build-up stage, you need an investor who should be an extension of your team – like having another co-founder, who is always there and is taking an active part in the problem-solving. If you are in a growth stage, however, your requirements would be different.

The right VC is like a well-fitting running shoe

I am a runner and in the early years of my running I was obsessed with finding the best running shoe. I read almost any shoe review in the best magazines on running, almost any book concerning that topic and talked with many runners (some of them were even professional ultra-marathon runners). A few thousands of euros later spent on top-ranked running shoes, I discovered that the best shoe is the one that fits best with your biomechanics of the body and often that shoe is not top of any rankings and might be even the not so obvious option on the market. Upon that discovery, my injuries almost disappeared, my form improved significantly and finally, long-distance running became such a joy.

The same goes for finding the best VC fund for your startup.  However, you should know that the process of finding the right investor requires much more psychology and engagement than just checking up most popular rankings or other VC metrics. In this case, it is more about relationships, sharing the same perspective and having common goals, than just numbers.

The right VC fund should:

  • Fit well with your startup’s phase of development.
  • Align with your vision and passion – the right VC investor should be as passionate about what you do as you are and have expertise in your field.
  • Fit well into your company culture.

Four questions founders should ask to find the right VC fund

Eleven is an early-stage VC investing in technology companies in Southeast Europe, so based on our expertise, we are happy to share tips and tricks on how to spot the best VC fund for an early-stage company (at a pre-seed or seed stage). 

Now getting to the essentials, in order to find the best VC fund for your startup, it is important to do due diligence on all your potential investors. You should do your research and be ready to answer the following questions concerning your choice of the future investor:

1. Can the investor help you attract and hire talent? 

In an early stage, it is crucial that the investor can help you grow your team, recruit the right people, and help you build the right governance foundation, as well as form a good board. Attracting great talent early is key, so investors who have the essential networking abilities and experience in spotting outstanding candidates are invaluable. 

2. Will the investor have your back in difficult moments? 

Good investors will be a 24/7 hotline available in difficult moments or whenever you need to make a crucial decision. No matter whether it is during the weekend, at 3 a.m., or late in the evening – they will always be there, making sure you are always on track, without being overwhelming. The VC partner who joins your company should fit seamlessly with all the rest of the founders and behave as a co-founder. 

3. Does the investor have enough knowledge and insights into your domain? 

One of the first things founders have to do when looking for VC funding is to check whether the VC understands and invests in their vertical. For example, a cybersecurity startup will get little value out of a VC that mainly invests in biotech companies. Finding an investor with deep expertise in the market you are targeting is key for the future growth and success of your startup. 

4. Can the investor help you get funded?  

The ability to help with fundraising is another must-have characteristic of a good investor. Having the extended network, in order to introduce you to the right people and help you get to the next stage series is an important factor. The best investor can prepare you for the fundraising journey, lead you through the process, and introduce you to the next stage VC funds.

Your efforts and contribution matter a lot

Finding the right VC is a two-sided process, so we are moving on with two essential tips, which depend on your effort and contribution. 

Preparation is key. 

Be prepared and determine what exactly your startup needs. Know your business in and out, recognize at what stage of maturity you are, set up your challenges, and be open for upcoming opportunities. Whenever you are fundraising, start with a very clear understanding of what you are looking for in an investor, and then evaluate very objectively all of the VCs that you are talking to. There has to be a match between the investor’s vision and your development goals, and to make it clear from the beginning what each side can bring to the table. Also, get prepared for the meetings you are having with potential investors – do the research, ask questions, and don’t be afraid to take the proactive side of the equation. 

Talk to other startups from your industry who have already been funded by the potential investor.

An effective way to find out whether a VC is right for your startup is to talk to its current or former portfolio companies and ask about their experience from working with that fund. VCs are usually great salespeople and might make use of that skill in first contacts. So, try to get their honest feedback as it is a great way to get an unbiased opinion and a real sense of the investor. 

Another way to do get more information about the VC fund this is to ask the investors themselves to introduce you to other entrepreneurs who were funded by them and then ask those entrepreneurs the same questions that mattered to you in the first place – how helpful the investors were with hiring, introductions, or whatever is on your mind. Once you have spoken to two or three current or former portfolio companies you will get a sense of how much of what was marketed to you by the investor really holds.

Concluding with one universal and fundamental piece of advice for all startups looking for a VC fund: 

A good investor is like a good coach – if you are in times of trouble, the investor should give you a hand, if you are flying high in the clouds and think that you are invincible, that’s the time when the investor should press you hard and make you think about the future.

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