Five Things Fintech Founders Should Consider When Choosing the Best VC Partner
By Daniel Ibri, Managing Partner at Mindset Ventures
Smart Money is More than Funding
Unless you have deep pockets, your fintech startup probably needs money to fuel your vision through outside investors. Today, capital is more abundant than ever. Founders with great products and concepts can choose which investors to invite into their cap table. Many investors bring added value that can be more important than simply funding. When investors share experience, insight, and connections, this is called “Smart Money.” Here’s what to look for in a Smart Money proposal from investors.
- What Can I Expect to See in a Smart Money Proposal?
VC proposals will generally offer varying support with the following:
- Market insights
- Access to talent and guidance on hiring
- Introductions to potential clients, partners, investors, etc.
- Help with follow-on funding
- Mentoring and coaching
- Brand awareness
- Does Size Matter?
Large VCs can bring entire platform teams to the table, making it easy for entrepreneurs to understand the support they’ll receive. Early-stage funds have fewer employees, but that doesn’t mean they can’t offer valuable expertise and hands-on support to their portfolio companies. Dynamics will also vary with size, so whether your funders are large or small, it’s essential to evaluate every investor relationship based on the goals and visions you have for your company. The smaller VC funds will often work harder for you as your success is more meaningful to them and their fund.
Because each investment is unique, it’s vital to ensure everyone’s expectations are clearly stated and closely aligned – and ultimately agreed to by all parties involved before accepting the offer. Some VCs may focus only on specific areas of expertise, while others can share broader knowledge and support. The dynamic between founders and the person or team you’ll be working with is fundamental, so make sure the personality and cultural fit is there. Regardless of the fund size, you must understand how the investor plans to support your growth and hold them accountable for following through.
- Does the Investor Have a Dedicated Value Creation Team to Support the Portfolio?
Structured, dedicated value creation or platform teams at VC funds provide the support to help you meet your goals. Find out how you’ll interact with the Value Creation Team after the investment. Consider the following:
- How is the team structured? Do you have a dedicated point person?
- How often will you connect?
- Does the team offer support in a structured and process-oriented way, or do you have to initiate support when you need it?
- Is there an onboarding process?
- What communication channels are available?
- Who is available for day-to-day support?
- How will the VC track and measure their efforts to help your startup?
- What KPIs and metrics will you track together, and what does success look like for both of you?
- Does the team work in partnership with other companies and service providers?
Ask for examples of support systems that have helped others in the VC’s portfolio. These real-world experiences give credibility to the Value Creation Team.
- Can You Check References and Past Performance?
When evaluating Smart Money proposals, a reference check is essential. Keep in mind the VC will recommend companies that have had success with their Value Creation Team. When talking to references, ask insightful questions to help you uncover alignment, working styles, and examples of their experiences working with the VC. Request to speak with other founders or team members that have closely interacted with the VC throughout the value creation stage. Go beyond the recommendations provided and talk to others in their portfolio and broader network.
- What Do the Numbers Say?
Ask for metrics and KPIs of the Value Creation Team to understand their track record. Seek to learn about both quantitative and qualitative KPIs and metrics. Look for a good balance between the two as you do your research.
For example, if a VC shows a robust number of introductions made, can they also share successful cases that resulted from such introductions? Can a VC that shares many successful investments also show consistent metrics derived from a structured tracking process?
There Has Never Been a More Exciting Time to Seek Funding
Understanding how Smart Money can bring additional value to your team, your fintech startup, and your bottom line is more important than ever when there are many options for investment. These are long-term relationships between founders and investors, so carefully evaluating exactly what VCs bring to the table – beyond funds – can make all the difference. Ask the right questions to ensure you’re only bringing on Smart Money.
About Daniel Ibri
Daniel Ibri, is managing partner at Mindset Ventures, a VC firm focused on early-stage tech investments in the US and Israel, offers 10 years of experience as a venture capitalist, international manager consultant, angel investor, M&A advisor, and mentor for startups. He has closed over 100 deals across 6 different countries and founded 3 VC funds. Daniel was also listed as one of the most influential investors of 2018 by Venture360.