Tactical Tips When Investing with VCs

Venture capital investing is a landscape of high risk and high reward, often characterized by its complexity and the need for astute judgment. To navigate this terrain without getting burned, I listed here a few guidelines:

1. Verify the historical performance of established funds, ensuring they rank within the top performance quartile compared to similar funds based on the latest available data.
2. Confirm the continuity of the fund’s leading partners within the firm, their likelihood of remaining due to job satisfaction and competitive pay, and their substantial personal investments in the fund where permissible.
3. Assess the retention strategies for emerging talent within the firm, focusing on equitable reward systems that encourage long-term engagement.
4. Evaluate if the fund’s past success is in sectors with continued growth prospects that align with your investment horizon.
5. Scrutinize the fund’s fee structure for competitiveness and clarity within the industry.
6. Investigate the fund’s parent company for signs of frequent staff turnover or a history of legal disputes brought by investors over subpar performance or unethical actions.
7. Research the profile of existing and potential investors in the fund, as discerning investors tend to flock to promising funds.
8. Ensure the availability of investment advisors for queries and that information on fund performance is not only regularly updated and transparent but also corroborated by independent entities when suitable.
9. For new funds lacking an established history, demand evidence of the management team’s prior success, their previous collaborative experience, and their own financial commitment to the fund, as well as the viability of the fund’s investment focus.
10. Confirm the presence of viable and equitable exit strategies from the fund, such as through secondary market sales, to ensure liquidity in case of premature disinvestment.

While these points do not guarantee superior returns, they serve as a foundational checklist for making informed decisions in fund investment.