Dear SaaStr: How Can I Tell If a Seed VC Fund I Haven’t Heard of is “Good Enough”?

Q: Dear SaaStr: How Can I Tell If a Seed VC Fund I Haven’t Heard of is “Good Enough”?

Everyone knows Sequoia, Andreesen, etc.  And on the end of the brand spectrum, the ones no one has heard of … well, all money is green at the end of the day — even if it sometimes can come with big restrictions (more on that, below).  You have to do what it takes to survive and thrive.

But is a venture fund you’ve never heard of … good enough?

A few general thoughts:

First, if you’ve heard of the firm, they are “good enough”. Not necessarily the right pick for you, if you have choices. But any VC firm you’ve heard of is plenty well established to write a seed check at least, and follow the standard norms and processes.

Second, if you haven’t heard of the firm, do some quick Google research. How big is their fund, how many funds do they have, how long have they been around, and have they done any investments you’ve heard of? If they’ve been around for at least a few years, and have raised at least a $50m fund or more, they probably are more than capable again of writing and potentially leading a seed round.

Third, ask. But ask the right questions:

  • How big is your fund?
  • How many deals do you do a year?
  • What’s your typical check size?
  • What stage do you like to invest at?
  • Do you lead rounds in startups like ours?
  • What are 2 or 3 of your top investments? How did you get to meet and know the founders? Can I talk to them later, if it’s a good fit on both sides?

The above checklist will get you there.  And one final thing:

Make sure the term sheet is normal, if you get oneIf a fund you haven’t heard of seems to check out, but the term sheet is nonstandard, that’s usually a sign of trouble.  More trouble than you might realize.  Any experienced startup attorney — and make sure they are experienced in venture-backed start-ups — can tell you.  Can tell you in the term sheet is somewhat normal.  Or a little bit … crazy.

If you can, pass on any VC firm that gives you a term sheet that is a little bit crazy.  And maybe, take a risk on a VC partner you really, really not just like but believe in … that still meets the above criteria.

And a related post here:

The 4 Questions Every Founder Should Ask Every VC. That Almost No One Asks.

And some general related thoughts here:

Published on February 2, 2022

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