Shop for a VC Fund like you Shop for a Car

Today I spoke to an entrepreneur whose company was perfect for DAN Fund: he had bootstrapped his business, is generating $50k of monthly revenue growing 7% month over month, is profitable, spends only $2k per month on marketing so he’s growing organically, and has had acquisition offers in the past.  So what did I do? I tried to convince him to talk to other funds before committing to us.  There’s a few things you should absolutely do when raising money:


-Shop around.  Make sure and talk to as many VC funds as you can.  You’re not only looking for a personality fit and someone that can help you, you’re looking for a philosophical fit as well.  For instance, DAN Fund wants to exit deals in 3 to 4 years tops so if you want to run your business for the next 10 years, we’re not aligned with you philosophically so we shouldn’t invest. 


-Make sure you really want it.  Having investors sucks.  All of a sudden you have to answer to someone, if you have a bad month you’ve got to have an explanation, and if you’re unlucky enough to get a super hands on investor, you’re going to get all kinds of ideas as to how you can run the business better.   Essentially, you just gave yourself a boss.  Although you may not grow as fast without the capital and your exit may not be as big, there is something to be said for the quality of life you enjoy when not having to answer to investors.


-Take your time.  If a VC is rushing you to make a decision, walk away if you have the luxury.  You’re about to get married to someone for a few years so taking your time to think things through and meet as many funding sources as you can is critical.  


-Evaluate alternative sources of capital.  DAN Fund only invests in equity which means we’re an expensive source of capital.  Look for debt financing or royalty financing if you can get it at attractive terms because it will almost always be cheaper than selling equity.  I’ve heard Lighter Capital is doing some great things for entrepreneurs and for royalty financing, it doesn’t get much better than Cypress Growth Capital (Vik Thapar is our guy there and doesn’t mind a cold email). 


Raising capital is a pain, but sometimes it’s a necessary evil to grow.  Make sure you talk to as many firms as you can, make sure you want the money, and go slow if you can afford to.      

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