How to Get Venture Funding, page 4

Different Kinds of Venture Capital Funds, continued

In order to obtain a commitment from a venture fund, you will need at least one general partner who is prepared to “take you on” and go to bat for you.

In addition to general partners, the typical VC fund has support staff, associates and analysts. Funds also may have specialists who handle legal, technology and recruiting issues.

Like many animal species, venture fund general partners take comfort if they are traveling in a pack. Other VCs being interested in, or investing in, a business or sector gives the VC security because it helps them believe that they are not completely out to lunch. A corollary of this is that getting the initial VC investment is the hardest (unless your business has totally gone south or is now unfashionable). Also, a good way to generate interest in your idea is to spread the buzz among VCs that other VCs are interested.

In other words, to a surprising degree venture funding is subject to fashions, trends and word of mouth. You can use that to your advantage.

How Much Difference Does the VC Make?

Roughly speaking, venture funds are either affiliated with a strategic interest or they’re independent. Some examples of a strategic interest fund are The Photonics Fund, primarily funded by fiber optic powerhouse J.D.S. Uniphase with a charter to invest in next-generation photonics; and Intel’s venture fund, with a general mandate to invest in companies that will spur the use of Intel’s products.

Around Silicon Valley, independent VCs are loosely categorized into top (or first), second and third tiers. While one person’s first-tier VC fund is another’s second-tier VC, there is fairly general consensus that a group of a dozen or so firms, including Accel, Benchmark, Kleiner Perkins and Sequoia are in the first tier. First-tier VCs have first-tier connections (to potential customers, employees and funding sources). In addition, funding from a top source, a little like getting into an Ivy League college, is an imprimatur of success.

If you are lucky enough to have multiple VCs eager to fund your fledgling business, you’ll find that they all attempt to sell themselves on the basis of things besides the money they have to offer. In addition to connections and access, those assets tend to be the ability to provide help with strategic thinking, an understanding of your industry, a nonbureaucratic process and other “touchy-feely” items.

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