What do Top Tier VCs think about startups that raised money from less reputable VCs?

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JASON LEMKIN

First, don’t sweat it. Don’t chase prestige here for the sake of prestige. You will regret it.

Raise money from the best investors you can, that can add the most value, AND that you trust — for each stage of your company’s growth. And this will change. The best investor to help you when you have 50 customers and need a few million dollars won’t be the same one to help you when you have 5,000 and need $100m.

And you will almost always regret taking money from a VC you don’t trust over one you do. Not initially. But later.

So … let’s talk prestige in VC.

IF you raise money from a “prestigious” partner that is ALSO at a “prestigious” firm (note you need BOTH), then the Next Round investors certainly will initially be more interested. Future fundraising will be easier, as long as you also do reasonably well. It will be easier to get meetings. And you can probably raise with a little less traction, and a little more promise, at the same or even — a better price. Everyone know Jim Geotz isn’t gonna take a flat round at his hottest start-up. And they’ll even Face East and pay a nutty price to get into his best deal.

AND

IF you raise money from a less respected VC firm, or a less respected partner even at a “prestigious” VC firm, the Next Round VCs will indeed initially be less interested. You’ll need more traction. You’ll have to prove yourself more. Your effective valuation may well be lower.

BUT

so what? what can you do?

my advice:

all money is green. if you need it, and only get 1 term sheet, take it 🙂
don’t take money from someone you don’t trust, if you have options. Trust trumps “prestige” (this is a huge, huge, huge rookie error).

BUT

the folks you’ll respect … that have good portfolio cos. … others will too. If you think a VC truly is great, once you get to know her … trust your judgment. Others will, too.
pick the right VC for the right stage. get the help you need.
all partners are not equal. and if raising another round is important to you — pick the best partner at a less prestigious firm over a less successful partner at a more prestigious firm. the Next Round guys know. they know who they want to follow. they follow the best GPs. not the best firms. mostly.

Finally … look at which VCs and firms have followed a partner, a GP. If A-level VCs have consistently followed that partner, i.e., led the next round … they will again.

And remember. You aren’t just taking money. Your hiring your boss, at least a little bit, at a legal level. A boss you can’t (easily) get rid of. So …

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Published on May 15, 2016
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