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 […]

Published on June 7, 2019

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

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 onlyFiction: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 teamsFiction: 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