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Most people think of a venture capitalist as an investor who provides capital to startups in exchange for equity. But that is only partly true. Venture capitalists are typically looking for a high return on investment. However, this high return will be difficult to attain without mentoring founders, sharing knowledge, resources and experience — and even providing mental support.
Below, I’ll highlight nine ways an early-stage venture capitalist should help startup founders after closing the deal, and these points are exactly what differentiates a great investor from a mediocre one:
Related: What I Learned From the World’s Greatest Venture Capitalist
1. Sharing mistakes
Those VCs who are entrepreneurs and experienced doers themselves bring in their valuable experiences and problem-solving skills possessed after overcoming hurdles in their own startups for years. But what is even more important is that while founders are only focused on one startup, venture investors have invested in dozens, so they are able to inform founders of the mistakes they’ve made in the past and the lessons they’ve learned from those mistakes. They can help founders avert similar situations. So, keep in mind that founders become stronger being surrounded by other entrepreneurs from the VC‘s portfolio.
2. Visibility and credibility
If you are a VC-backed startup, that means someone trusts you with their money. That’s a credibility criterion. Furthermore, if you are a VC-backed B2B software startup for your enterprise clients, the fact that you have already raised money will mean that you are sustainable enough to fulfill the contract, and you have enough runway. This is also a good sign for banks if founders want to take out a loan — and it goes without saying that founders appear on the radar of growth-stage VC firms. They often follow the successes of their peers’ portfolio companies. That’s exactly the kind of visibility entrepreneurs need.
3. Industry expertise
Most venture capital firms have their funds with an industry focus: B2B SaaS, MedTech, Creative Economy, etc. This means that the VC team has seen hundreds of tech companies, and they’ve most likely previously worked in the field in which any given founder is currently building their startup So, they have a wealth of knowledge to pass on to founders. At our venture capital firm, we have data-driven systems for monitoring industry benchmarks, for instance. Founders shouldn’t underestimate the benefits they can gain from such expertise.
Related: 9 Top Venture Capitalists Share Their Best Advice for Entrepreneurs
4. BoD meetings
Having a place on the Board of Directors of a startup is a common practice for early-stage VCs. Most BoD meetings are held once a quarter, where the founding team shares metrics, results and financial forecasts for the future. Those meetings help both with operational issues and with crafting strategic plans — and experienced VCs often give wise pieces of advice regarding all of them.
5. Evaluation
Venture capital team members, being outsiders, provide a third-party evaluation of startups. They often ask questions and critically examine your plans, work and execution. It’s important for founders to listen to people who are interested in their growth, but not involved in daily operations. The VC is waiting for the startup’s growth and thus thinks strategically, that’s why a VC might be the best advisor in opening the founder’s eyes to some major moves and not making small problems a big deal.
6. Financial modeling, PR and HR
Founders don’t always know how to get recommendations on their potential CMO or Chief of Sales. They can ask their VC firm’s partner if he or she has any honest reviews in their professional network about the candidate. Let’s say a founder has questions about building a financial model. Whom should they ask? I bet 99% of founders can go to their VC firm’s associate, and they’ll help. And when founders have a news peg, but are too small to hire a PR specialist — bingo! — the VC’s PR expert can help. That is what we call “an entrepreneur-friendly VC firm.”
Related: The How-To: Choosing The Right Venture Capitalist For Your Startup
7. Mentoring
In the initial stages of any startup, founders are in a vulnerable position and need mentoring in order to avoid fatal mistakes, not waste time on useless actions and scale their business. A VC will not teach you to do your business, but a VC can be a partner to brainstorm a strategic question or give some tips on decision-making or scaling, for example. Systematic peer-to-peer meetings with constructive feedback are crucial for most entrepreneurs, even serial ones. Investors provide this support and share insights by investing their time and resources during such sessions.
8. Mental support
It is always good to know that somebody believes in you. Sometimes a VC can operate like a therapist — if founders feel like they can’t be vulnerable with their clients or even with their colleagues, the investor who was once in the same boat might be the right person for the founder to shout SOS to when they need support. Most VCs are experienced managers and decision-makers, and they really know how to encourage entrepreneurs.
9. Contacts, networks and intros
By utilizing their contacts, an investor may be able to open more doors for building strategic partnerships. An investor’s network may help with collaborations with other startups, and they may be able to empower the user acquisition marketing strategy, for example, by the means of cross promotions, various referral programs, as well as guest blogging and integrations into partners’ newsletters. Moreover, early-stage VCs are always the ones who are interested in getting later rounds. They introduce founders to more investors and help with growth, expansion and funding.
Whether a VC will help founders along the road to becoming a unicorn or instead be an obstacle could not be evident after just two or three calls or meetings. Founders should always do reverse due diligence and talk to several portfolio companies to learn whether or not the VC they’re interested in is one who would do everything from the list above.
