These days, deals are extremely competitive, and every venture capitalist (VC) wants an edge. As an in-demand founder raising capital, you'll hear VCs talking about the factors they bring beyond the money, whether it be their "deep founder alumni network," the "senior-level industry advice specific to your niche" or the mystically ambiguous "board-level connections" in that industry you're trying to penetrate.
While it's comforting to hear that this VC focuses on adding value, how much of that stated intangible value is truly added in practice? There are millions of dollars on the line, and accepting a lower valuation justified by intangible value-adds might mean the permanent loss of many more millions if you're not careful.
To avoid getting trapped by a disconnect between VCs' stated value-add and what value those VCs actually deliver, it's important to follow a few key steps that will help ensure alignment on what to expect on the value-add front.
1. Be realistic and define your own best value-add investor.
Realism starts with operating under the assumption that your investors will not be executives at your company. What you're looking for is not a sustained, long-term effort; rather, you should focus on the quick wins that would deliver the highest impact for your company.
For many businesses, that value would come at the top of the profit and loss statement (P&L)-- drastically increased sales or significant variable-cost reductions. For example, that might mean a foot in the door with an enormous distributor/group of customers in your space, or a volume purchasing deal that lowered your costs by 15 percent from one month to the next.
In a nutshell, you should be thinking along the lines of, "What relationships could our ideal investor open up with a 5-minute phone call, that we could then take forward and deliver a step-change in sustainable value?"
2. Once you've defined your goals have an open discussion with your potential VC investor.
Understand that should they invest, you're on equal footing as shareholder "partners" in your business, and it's important that any stated value-add benefit be delivered. You should be explaining that your expectations aren't unrealistic and that you want to absorb the benefits of their added value in a low-impact manner on their time.
Dive deeper into what this prospective investor can bring to the table. If new customer relationships are on the table, explore how solid those relationships might be, and more broadly, how they've helped other portfolio company founders in the past.
3. Trust, but verify.
You should be doing your due diligence on them, as much as they're doing their due diligence on you. An integral part of your VC-vetting process should be speaking with other portfolio company founders, both with the founders the VC points you to, and those that they don't.
Be specific in your vetting questions: Which benefits did the VC promise you? Did they come good on that promise? What was the effect? Was there anything they promised that you didn't get in the end?
Overall, when assessing the value of intangible value-add features of a given VC, you need to be specific and realistic on what you're looking for, thorough in your discussions of expectations with your investor, and diligent in verifying based on other founders' experiences that you can get what you're being promised.