Venture capitalists at a healthcare investing discussion I attended last week (hosted by Cleveland-based economic development group BioEnterprise) seemed to agree that, aside from the obvious large market opportunity and good product, their relationship with a company’s team had the most influence on whether a deal would work well.
“Can we argue and laugh and be intellectually honest with each other?” questioned Mark deLaar of Summit Partners.
To that end, other investors from Bain Capital Ventures, Riverside Company and Serent Capital emphasized to entrepreneurs the importance of checking an investor’s references.
“We should be making any CEO in our portfolio available to you, not the select list of ones that just exited,” said Jared Kesselheim of Bain. “Certainly not every investment goes well. You should be able to talk to CEOs of companies where it didn’t go well, and hopefully they would still have positive things to say about the way that we worked together.”
Even before that, though, it’s important for a company to determine what kind of investment it’s looking for. “The flavor of private equity goes from, we predominately do minority investments to, we buy 80-90 percent of businesses,” said David Kennedy of Serent Capital. “Once you get through that, you can look for someone who does that transaction predominantly and find a good fit.”
That’s an important point for ensuring that CEO and investor goals are aligned. But a good fit means more than just money. Riverside’s Joe Ibrahim pointed out that money is a commodity, and investors should be evaluated also by what other resources and expertise they can offer. Could they drop in a chief financial officer tomorrow if that’s what the company needed?
The investors’ advice was pretty consistent with a survey released earlier this year which found that CEOs prioritize a venture capital firm’s reputation and principles and the ability to add value beyond funding. Fewer than half of the CEOs surveyed said a strong track record was the top criterion when evaluating a VC.
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[Image credit: FreeDigitalPhotos user duran123]
