Fact or Fiction: The Biggest Misconceptions about VC Funds

With
so many new ideas and companies being founded every year, Venture
Capital (VC) is always one of the primary funding options when startups
want to scale-up and grow. And although many VC funds exist globally
each with their own strategy and preferences, there are several
misconceptions about VC Funds and how entrepreneurs should interact with
them.

I have heard them all, but these are the main ones I wanted to clarify.

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1. All VC Funds are the same-Fiction: Entrepreneurs
   often think their ideas are equally appealing to all investors and if
   one VC fund states an opinion about the investment then all VCs should
   follow suite. Each VC fund has different parameters ranging from
   investment stage, industries preferred, ticket size and overall
   strategy. An investment that may be attractive to a certain VC might not
   be to another. To maximize chances to get invested, startups should map
   the VCs they have access to and see which one(s) meet their investment
   criteria. Although this does not guarantee a 100% investment, the
   chances will increase significantly thanks to the better fit.
2. VC Funding is a competition-Fiction:This
   goes to both the VC and startups; VC funds always look for the best
   investments that align with their strategy and most exciting startups,
   if more than one startup qualifies, it is very probable that a VC will
   invest in them. As such, startups should not consider raising VC funds
   as a competition; a startup getting VC funding will not affect the
   chances of another startup being funded. A startup getting VC funding
   should not think about fundraising as a race; good startups will always
   attract the attention of investors.
3. VC Funds are sworn enemies-Faction:Although
   in rare cases VC funds might start a bidding war on a certain company;
   it is more likely however that they collaborate on many cases and
   co-invest. Co-investment has been a rising trend particularly in the
   MENA region, as it allows for VCs to pool a bigger overall round for the
   founders, get validation from multiple independent sources, mitigate
   risk and also most importantly give startups access to bigger network.
4. VC Funds look out for their interest only–Fiction:Let’s
   be clear on this one, VC firms are for-profit companies and are looking
   for the best return on investment from their portfolio. This is often
   wrongly considered self-interest. The reality is much simpler; VCs and
   entrepreneurs are shareholders in the same company making them defacto
   partners; the success of a startup becomes the success of all
   shareholders; making the interests of investors and VC funds aligned.
5. VC Funds contribute only with their money-Faction: The
   main role of a VC fund is to provide growth capital for a startup; no
   ambiguity in this. However, many VCs also act as advisors and mentors to
   their startups. While the level of involvement and depth given by a VC
   depends on the startups’ needs, some startups get in-depth support in
   certain areas such as strategy, marketing, HR, etc. VC team members or
   advisors will often commit significant time helping a portfolio company.
   Other kinds of support may include introductions and links to other
   investors or even service providers.
6. You cannot reapply to a VC Fund-Fiction:Many
   startups don’t apply for VC funding fearing they will be rejected and
   lose the opportunity; and often postpone scheduling meetings with VCs.
   Most VCs will meet again with startups they had originally rejected
   specially if the first impression or business model had been good; this
   possibly leads to the same VC investing in that formerly-rejected
   startup. However, for this to happen a startup must have either made a
   huge leap in terms of traction, KPIs, product or might have
   changed/adjusted its business model becoming more attractive for an
   investment. A startup having understood the reasons for its first
   rejection and fixed them should have no problem in scheduling follow up
   meetings with previously contacted VCs.
7. VCs only care about strong teams–Fiction: The
   strength of a team is a major factor for a VC investing in a startup, a
   good team can execute its strategy, grow the company and most
   importantly adjust and pivot when the market assumptions change.
   However, no matter the team’s strength, a strong business plan and/or
   strong/innovative products are just as important.
8. The closest analogy of the relationship between a VC and a startup is dating-Fact: This
   might sound funny but when you think about it: you start with the
   players getting to know each other and checking for attraction, then
   follows the investment which is close to getting married, while an exit
   is akin to a separation. And like any relationship, ups and downs happen
   but if the partnership is strong, it remains and grows.
9. VCs will only give you the amount you need or request- Faction: One
   of the biggest misconceptions of fundraising is that the less you ask
   from VCs the higher the likelihood of receiving funding. While some VCs
   will stick to the amount asked others might propose a slightly bigger
   ticket (ie to cover 24 months instead of the 18 Months budgeted). This
   is a deliberate proposal to account for probable delays in execution and
   market factors and will give entrepreneurs more time to focus on the
   business component rather than on a perpetual fund raising cycle every 6
   months.