Things to Look for in a Venture Capitalist

As an entrepreneur in the startup phase, there comes a stage when you might be working with venture capitalists (VCs). Some people think VCs are really lucky, others believe they’re extremely smart and well organized in their investments. VCs tend to be successful based on their relationships—who they know.


The following are some insights into their world and their psyche through Steve Andriole. Andriole has been a venture capitalist at Safeguard Scientifics, Inc. and is currently an active angel investor in a variety of business technology startups.

As an entrepreneur looking for investment or an investor looking to make some money, the following are five rank-ordered areas to assess:

  1. Relationships: Who does the VC know, work with or invest with? Look for strong VC relationships that might include law firms, successful entrepreneurial testimonials and happy institutional investors.
  2. Performance: VCs win whether they succeed or fail, but as a business owner, you need to find out what the empirical record actually shows—the real results. Look at the internal rate of return of each and every fund they have raised and the carried interest that investors actually received. This is the most important due diligence that you will ever do.
  3. Advocacy: It is important to understand the firm’s orientation. Is it an entrepreneur-friendly firm or more focused on the investor? Entrepreneur-friendly firms have better deal flow than firms that have investor biases.
  4. Knowledge: VCs should know enough to know their weaknesses, or what they don’t know. Arrogance and stupidity in a VC is a bad combination—stay alert for such traits.
  5. Professional Integrity: Be sure to calibrate the ethics and integrity of your VC firm.

Have you ever pitched to or worked with a venture capitalist? What is the most important trait you assess when approaching a VC?

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Thanks for reading, and until next time… stay WISE!

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