Ciaran O’leary of Earlybird, a VC fund in Berlin, gives founders a checklist for running due diligence on their potential investors. Due diligence should go both ways: VC check-list for entrepreneurs, suggests three main categories that entrepreneurs should check before accepting to take money from an investor.
- Pocket Size – will they have the money to back me going forward
- Track Record – how does my startup fit in their portfolio
- Personalities – engagement, quality and size of their network, personal chemistry and peer reviews
I recommend reading through the questions he posted on each category if you’re in the process of fundraising. Some startups will be happy to secure ANY investment, but if you see the relationship with a fund a long term one (at least 2-4 years), detecting these issues in advance will save you a lot of pain.
3 Takeaways from the VC due diligence checklist for entrepreneurs:
- Speak with existing portfolio companies to get their feedback
- The 7 meeting rule: the more interaction before you commit the merrier (formal meeting, dinner/drinks, events)
- Read “Venture Deals” by Brad Feld and Jason Mendelson and get smarter about the whole fundraising process