The twins made it clear to the VC on yesterday's conference call from Asia to the Valley that they had been burned by a Wall Street firm and didn't want to go through the agony of proceeding through the financing investigation process just to find out in the end that the investor had no stomach for the deal. The VC wisely reviewed the differences between an early stage VC firm and a Wall Street firm that invests typically in the last stage before IPO. And a lot of other differences were discussed. The twins relaxed a bit but remained on their guard and later told me they'd seek more VCs to compete for this round.
Today I met a new board member of a VC backed startup. He is a first-time VC, coming from one of the giants on Wall Street and with a stellar background as an investment banker. As I got to know him, I found him very intelligent, filled with energy and eager. Yet as I compared him to the VCs on that board I could see large differences. I wish him well and expect him to learn, alter and become a fine VC some day. Meanwhile, the experienced VCs will be providing the resources expected from investors in a private startup.
The point is simple: Think about what you get from your investor besides the money. Yesterday evening, A.C. and I prepared a list of resources we think his startup will need from a VC other than money. Doing that will help you pick wisely.
BOTTOM LINE: There is a lot that sounds at first good about getting money from a Wall Street firm for your startup. But there are a lot of good reasons why VCs do most of the investing. Think about what you want besides money and then consider your choices of investor. It can save you a lot of pain.