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As a budding entrepreneur, I lived in a very ideal world. One of my understanding was that a VC would align with your objectives as an entrepreneur. I have realized that a VC work for himself, not for you. His goal is to get his investment multiply. In that he would support you as long as he sees you working towards his objective.
Making money can be the major objective of both a VC & an entrepreneur, however these can be important differences in the ways that are to be taken to reach the destination. Entrepreneur feel their strength is determined by the percentage of equity they hold. While it may be true to some extent it is the psychological advantage that matters most. You can be a millionaire & yet behave like a beggar.
A VC’s relationship with you largely depends on how you dictates the working relationship not the shares you hold. There are four important points that determine the relationship:
(1). The extent you dilute yourself: A common understanding is that a small percentage of high valuation is a company can be larger than a large percentage in a small valuation company. While that is quite true it should also understand that dilution below a threshold level can be detrimental to the minimal influence you need to have on business. Generally >20% entrepreneur holds a psychological advantage. This advantage is necessary to apply as differences appear in the road to realizing value for the company. While one of the most important inputs to success in the advice a VC can provide, be careful to not let him dictate terms. Many entrepreneurs make money by getting dictated but feel like having sold their soul that goes against self-fulfillment.
(2). There is truly something called good money vs bad money. Due to financial crisis I went to a financer (would not call him a VC) that crated immemorable psychological & other problem for me. You must realize as an entrepreneur that it is important to get funded but even more important to does not do it from someone who is not a professional and does not understand your business. A good VC also become a magnet for good money if his rating lies above a threshold. The next round of funding is more ensured. It is an irony but VC’s get other VCs to fund even if they can see a low probability of success. It is all about “getting the monkey off your back.”
(3). Funding is a long from process (6 to 12 months) & has to be initiated well ahead of the time you will had money.
(4). You have to invest huge chunks of time behind a successful funding. It can be a huge dilemma for most entrepreneurs as they are not able to strike a balance.
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