Founder Insights: How to Choose the Right VC

Securing funding from a venture capitalist (VC) can be an exhilarating milestone for any founder. It validates your vision, provides resources to scale your company, and opens doors to valuable networks. However, not all VCs are created equal. Picking the wrong partner can lead to years of frustration, misaligned priorities, and even derail your business.

Paul Müller, Partner at EWOR and Key Advisor at Adjust, provides invaluable advice on selecting the right VC. This guide builds on his insights to help you navigate the complex world of venture capital and make an informed decision.

Understanding What VCs Are (and Are Not)

Before diving into how to choose a VC, it’s essential to understand their role. VCs are investment firms whose primary goal is to generate the highest possible return on their investments. That’s it. While they may present themselves as partners or mentors, their ultimate allegiance is to their fund’s success, not your business.

This isn’t necessarily bad—it’s just business. However, it’s crucial to approach your relationship with VCs with clear expectations. You’re entering into a professional partnership, not a friendship.

Additionally, when you sign a deal with a VC, you’re not just working with the individual partner who represents you—you’re working with the entire firm. This distinction matters because decisions will often involve other partners, and their perspectives may differ from the partner you initially connect with.

The Number One Priority: The Best Deal

When it actually comes to working with VCs, many founders focus on finding a VC with industry expertise, a strong network, or a stellar reputation. While these are valid considerations, your first priority should always be to secure the best deal. Here’s what this means in practice:

“Biggest Check, Least Strings Attached.”

Your goal is to secure the maximum funding with the fewest restrictive clauses. Look for a term sheet that avoids unnecessary complications, such as excessive oversight or operational controls. While VCs understandably want to protect their investment, overly restrictive term sheets can suffocate your ability to lead. 

For example, some VCs might insist on requiring approval for every significant operational decision. However, these demands can create bottlenecks, delay progress, and undermine your autonomy as a founder – so it’s best to avoid this.

Likewise, avoid overreaching clauses. These are the clauses that that give the VC special privileges—like veto rights over key decisions or an outsized influence on your board. These aren’t just minor details; they signal an intent to exert more control over your company than is reasonable and open the door to potential micromanagement and a serious power imbalance

Evaluating VC Experience and the Realities of "Smart Money"

Many VCs claim to offer “smart money”—funding coupled with invaluable expertise, advice, and connections. While this can be true in some cases, it’s not a universal reality. 

As Paul Müller noted, many VCs fall short of these promises, making it essential for founders to evaluate their prospective partners thoroughly. This involves understanding their experience, testing their claims, and analysing the terms they propose.

Do They Bring Real-World Experience?

The value a VC provides often hinges on the people behind the firm. Partners with real-world entrepreneurial experience—especially in your industry—are more likely to understand your challenges and provide actionable advice. They’ve been in your shoes and know what it takes to navigate obstacles and seize opportunities.

Conversely, a partner without hands-on business experience may struggle to support your journey. If their background consists solely of finance or leisure activities, they might lack the practical insights needed to help your company thrive. Take the time to research your prospective partner’s credentials and the broader team at the firm. Even if your main contact is strong, conflicting advice from less experienced colleagues can complicate your partnership.

Do Their Results Speak for Themselves?

Research the VC’s portfolio. How many of their investments have succeeded, and how many have failed? A firm with a high failure rate may lack the expertise or network to support their portfolio companies effectively.

Are They Aligned With Your Industry?

While industry alignment isn’t the top priority, it does help if your VC has experience in your sector. They’re more likely to understand your market dynamics and may have valuable connections to key players in your space.

Testing Their "Smart Money" Claims

Because many VCs claim they can offer introductions to industry leaders, potential customers, or strategic partners, put their claims to the test before taking their word. Paul recommends doing this by:

• Asking for Proof Before Signing
  Request three to five meaningful introductions that could help your business right now. A good VC will have no problem providing these upfront.
  
  
• Evaluating Their Responsiveness
  Consider a VC's hesitation or insistence on signing the term sheet first as a warning sign. It may indicate that their “smart money” claims are a bit exaggerated.

What the Term Sheet Reveals About Their Intentions

While evaluating a VC’s experience is essential, their term sheet offers a clear window into how they plan to engage with your company. It reflects their priorities, expectations, and the dynamics of the relationship you’ll be entering.

Maintaining Control Over Your Business

One of the most significant aspects of a term sheet is board composition. As a founder, you should retain majority control of your board to ensure decisions align with your vision. Without this control, you risk being sidelined in key moments or steered in directions that don’t align with your goals.

If a VC insists on having majority control or disproportionate privileges on the board, it’s a major red flag. Such terms can lead to unnecessary conflicts and erode your autonomy as a leader.

Are You Aligned on the Endgame?

When choosing a VC, understanding their perspective on your company’s long-term trajectory is essential. Are they aligned with your vision for sustained growth, or are they prioritising a quicker exit to meet their fund’s timeline? These differences in priorities can have a profound impact on your partnership. Misaligned expectations about the “endgame” often lead to tension, especially as your business reaches critical decision points.

Misalignment in Goals

This misalignment often stems from the nature of a VC’s operations. Their goals are shaped by the lifecycle of their investment fund, which dictates how long they can wait for returns. Some VCs aim for short-term results, pushing for an exit within five years, while others have the patience to support a decade-long journey to build a billion-dollar company. If your visions don’t match, conflicts can arise—such as a VC pressuring for an early sale once their goals are met, even if you believe your company has much more potential to grow.

Tackling Growth

Aligning on the endgame also means understanding how a VC views specific growth strategies, such as international expansion. If scaling into new markets is part of your vision, it’s crucial to ensure the VC is comfortable with and experienced in cross-border operations. 

For example, a German company raising funds from a US-based VC may encounter challenges if the investor lacks familiarity with internationalisation. This can lead to hesitation or unnecessary roadblocks when trying to navigate the complexities of global growth. Discussing these scenarios upfront allows you to gauge whether the VC is equipped and willing to support your broader ambitions.

Ask the Right Questions

To avoid issues, it’s crucial to discuss their perspective upfront. Ask questions like:

• What is their timeline? Are they working within a fund that pressures them to exit early, or are they open to a longer trajectory?
• What is their definition of success? Do they envision a scalable, long-term enterprise, or are they focused on smaller milestones that lead to a quicker return?
• How do they view international growth? Are they prepared to support the operational and regulatory challenges of scaling into new markets?

These conversations provide clarity about whether the VC is prepared to walk the same path as you.

Aligning on the endgame ensures that you’re building a partnership with a shared vision for the company’s future. The right VC will support your growth at every stage, empowering you to scale on your terms rather than forcing you into premature decisions. Taking the time to confirm this alignment upfront will save you significant conflict.

Due Diligence: Patiently Vetting Your VC 

Choosing the right VC is one of the most critical decisions you’ll make as a founder. Just as VCs meticulously evaluate your company before investing, you should conduct your own due diligence to ensure they’re the right partner for you. This step is not just advisable—it’s essential to avoid conflicts and regrets down the line.

Do Your Homework 

When performing due diligence, dig deep into the VC’s track record and reputation. It’s about more than just their portfolio successes; you need to understand how they behave in different scenarios, especially when things don’t go as planned.

• Talk to Founders They’ve Backed: Start by asking the VC to introduce you to several founders they’ve worked with. While it’s useful to hear from companies that thrived under their guidance, it’s equally important to speak with founders whose businesses faced challenges. How did the VC respond to tough times? Were they supportive, or did they disengage when the road got rocky? These conversations will provide critical insight into the kind of partner you’re signing up for.
  
  
• Seek Independent References: Don’t rely solely on introductions provided by the VC—they’ll naturally steer you toward their happiest partners. Use platforms like LinkedIn, EWOR, or your personal network to identify other founders who’ve worked with them. Independent references can provide an unvarnished perspective on the VC’s behavior, responsiveness, and long-term support.
  
  
• Look Beyond the Numbers: While reviewing the VC’s portfolio, pay attention to more than just the number of exits or valuations. Consider how long they’ve stayed involved with their investments, whether they’ve supported international expansion efforts, and whether their portfolio companies align with your industry or growth ambitions.

Don’t Be Rash

The promise of significant funding can make it tempting to rush decisions, but picking the wrong VC can have consequences you’ll deal with for years—potentially a decade or more. Taking a deliberate, thoughtful approach is critical to ensuring you make the best choice.

• Take Your Time: Review all term sheets carefully and consult legal and financial advisors to fully understand the implications of every clause. A hastily signed deal can lock you into terms that stifle your autonomy or create friction down the road.
  
  
• Think Long-Term: The first VC you choose will likely remain involved in your company for a long time. If they’re difficult to work with now, that dynamic is unlikely to improve. Ensure you feel confident about their character, values, and compatibility with your vision.
  
  
• Focus on More Than Money: While funding is critical, a VC’s ability to genuinely support your growth is equally important. A partner who aligns with your goals and provides meaningful advice, connections, and support will deliver far more value than a simple check.

That’s a Wrap

Choosing the right VC is a high-stakes decision that can shape your company’s trajectory for years to come. By prioritising the best deal, evaluating the VC’s experience and track record, scrutinising term sheets, and aligning on long-term goals, you can select a VC who truly supports your vision.

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