Venture capital investment group

When looking for venture capital, depending on the size of the round and the risk appetite of the investor, you may end up with an investment pool rather than a single VC.

During the course of your conversations with various venture capital firms, ask them if they would consider being part of an investment group. The conversation that follows will give you a variety of information. They will probably tell you if they always, sometimes, or never co-invest with other groups. If they do, ask them who else they typically invest with. If they are interested enough to invite you to a presentation, they may be willing to present to another company.

Also, let’s say you get a ‘no’ from the VC you’re talking to, but you get the feeling it’s a soft no. If you find another company that is willing to lead your funding round, you can go back to companies that normally co-invest with others, even if they have already turned you down. Sometimes, once an investment is blessed by another company, the first company may reconsider its position.

The VC should have informed you ahead of time that your company is interested in being part of an investment group. Finding in the term sheet that the company only intends to invest in part of the round indicates either that the VC is a novice or that there were some last-minute qualms about the investment that caused the partners to back out at the last minute.

A rookie VC may or may not be a bad thing, but if one or more of the partners refuse to accept the deal, there could be problems during term sheet negotiations. Try to identify what makes partners take a lower risk position, so you can reassure them.

In general, having several well-known firms as part of your investor group is positive. For one, you get double the resources for the same investment, including double the industry and future investment contacts. Also, if you need a second round, investors may not be able to keep investing, but if you have two companies, your chances of receiving additional investment double.

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