Raising venture capital is often seen as the holy grail for startups, but taking money from just any investor can be risky. On today’s episode of The Small Business Show, we’re breaking down how founders should approach VC funding strategically, not just as a one-way street where they’re being evaluated, but as a partnership where both sides need to be a good fit.
George Deeb, author, Forbes contributor, and managing partner at Red Rocket Ventures, outlines three critical areas for assessing venture capital:
- The firm
- The individual
- The deal itself
“You really need to do your homework on all three things because they all play a role and figure out the right partner for you.”
At the firm level, founders should confirm that the VC has experience in their industry, a proven record of portfolio success, and sufficient capital to support multiple funding rounds. The firm’s reputation can also boost a startup’s credibility, making alignment with a well-regarded investor beneficial beyond financial support.
For the individual partner, experience and track record matter most. Founders should understand the partner’s seniority, management style, and ability to provide mentorship. Checking references from other portfolio companies can offer insight into the partner’s effectiveness and compatibility.
The deal structure is equally important, as founders need to carefully review investment terms, valuation, and equity arrangements. Most VC deals are structured as convertible equity rather than pure debt to reduce the startup’s risk. Specialized startup attorneys are essential for navigating these complex agreements and ensuring entrepreneur-friendly terms.
Deeb notes that not all capital is equal. “Smart capital,” paired with guidance and alignment, is far more valuable than cash alone. Pre-revenue companies may face subjective valuations, where the idea and founder quality often outweigh current revenue. Even investments from friends and family require careful evaluation to prevent future conflicts.
Choosing the wrong investor can derail a startup. Therefore, founders who take the time to assess firm strength, team fit, and deal terms increase their chances of long-term success and personal satisfaction.
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