This question originally appeared on Quora: What matters to venture capitalists in small acquisitions?
A few things that matter:
- Returns--a VC's highest priority is that a company exits for a high enough value that it has a meaningful impact of the IRR of the fund. That is not going to happen in this case. Depending on the valuation of the round they invested in, it looks like you are only going to return the cash they invested, and they will lose all of the opportunity cost as well as the time/effort they put into you. Which takes us to:
- Reputation--your company is not going to be a financial win for them, but it still helps them if you can make it look like a win. If they can say, "we invested in company X, which was subsequently acquired by Google," it looks better for them than if it were a total loss.
- References--a good VC is going to hope that your experience with the firm was good enough that you will refer other deals to them and be a positive reference.
- Repeat business - assuming you didn't do anything unethical or prove yourself to be an entrepreneur not worth backing in the future, the firm probably would like you to go back to them next time you have a new company that needs funding.
So all you can probably do now is:
- Get the best deal you can from the acquirer and make sure the preferred stock holders are treated fairly.
- Be completely transparent and keep the firm apprised of the process and work with them on it.
- Have a post mortem with them, talk through what went well and didn't, and tell them you will provide positive references to the firm in the future and that you'd like to work with them again if they will have you.
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Published on: Aug 21, 2014