The best angels and VCs offer more than just money. Here's what to look for as you shop around.
Looking to VCs or angels for the capital to take your start-up to the next level? Proceed with caution--not all investors are created equal. In fact, there are a handful of characteristics you should look for when you're shopping for potential backers.
Sharmila Shahani-Mulligan, CEO and founder of ClearStory Data, a Palo Alto-based company that helps non-technical business users extract information from internal and external sources of big data, understands the benefits that come from working with the right kinds of investors--her company has closed $9 million in funding from Kleiner Perkins Caufield & Byers, Andreessen Horowitz, and Google Ventures, but it's more than the money she appreciates. She's also an angel investor in several Silicon Valley start-ups, sits on the boards of several others, and has a keen eye for what early stage companies need most.
Before signing with any investor who may end up owning a piece of your future, Shahani-Mulligan says you should look for these qualities:
1. Business Operating Experience
Many fledgling entrepreneurs might be engineers who have a great tech idea they're building out yet lack experience running a business.
"Going from a technology to a product to a successful company are three very different things," she says.
Seasoned entrepreneurs can teach you things like how to go to market, turn your idea into a product, find a perfect market fit, get customer validation, and close your first few accounts.
"That type of experience is really invaluable for the early days because the teams are usually busy coding and building the technology and not necessarily thinking about the selling and market implications of what they're building," she says.
2. Domain Expertise
Investors who actually have some expertise in your field have seen the market mature and can offer relevant input as you look to build your technology or product.
"Having investors without domain expertise is OK, but it's not as rich an experience because they can't necessarily speak to or fully understand or appreciate the technology you're trying to build unless they've seen the last generation of it," she says.
3. Help With Recruiting Talent
Your success depends on your ability to recruit great people, especially the first 20 or 30 members of your team. Investors who have robust networks can not only help fill positions across all functions and levels of the company, they can save you a lot of money in recruiting dollars.
"One of our board members is from Kleiner Perkins--he's an ex-VP of engineering at Twitter and he comes with an amazing network of engineering talent," she says. "Google Ventures similarly has a lot of people leave Google and they send them our way as people are looking for their next thing and that just gives you a rich flow of people that are very high caliber for technical positions," she says.
4. Long-Term Vision
While some investors are more concerned with reaching near-term business goals, the best backers are able to take a broader view and appreciate how you're trying to change the market or disrupt a space.
"You need investors who have the patience to have lived through the first two years as the technology is shaped and then go into the market-disruption phase, so it's really people who understand how to balance the near-term goals of the company with the long-term vision and what it takes to fulfill the vision," she says. "The long-term disruption is really what creates giant companies."
5. A True Partner
Here's what you don't want: A relationship with your investors in which you're merely reporting to them. Instead, you should be in constant communication with board members and investors who are thinking about you and your company on a regular basis and working with you in a day-to-day partnership.
"I feel fortunate, that's what we have. We have a very tight partnership with our three investors and we're in constant communication every week, every day and it's amazing to have that," she says.
CHRISTINA DESMARAIS is an Inc.com contributor who writes about the tech start-up community, covering innovative ideas, news, and trends. Have a tip? Email her at christinadesmarais (at) live (dot) com. @salubriousdish