An Entrepreneur's View of VCs (continued)
More excerpts from Tom Evslin's lessons on how to select and work with VCs. Excerpts from lessons #1 - #4 are available here.
"Lesson #5: ask VCs about their firm’s “exit strategy”...
At some point, the VCs will sell or distribute the stock they hold in your company. Whenever it is, you won’t like it; but it is better to understand this in advance than to be surprised...
Lesson #6: look for VCs who can and do distribute.
When the time comes for a VC to liquidate some or all of its position in your company, it can usually either sell the stock outright or distribute it to its LPs. I believe that distribution is better for the company than an outside sale. For one thing, it doesn’t send the same signal to the market as a huge sale by an initial investor which may have to be reported publicly depending on how recent your last equity event and the size of the VCs stake...
Lesson #7: check VC references...
Lesson #8: Choose VCs you’d trust with your own money...
Lesson #9: use your VCs relentlessly...
Lesson #10: push to speak to the Limited Partners.
Every VC firm I know has an annual meeting of the LPs and usually invites some of the portfolio companies to present or at least mingle. These LPs may become (or may already be) direct investors in your company. Most important, if the VC distributes your stock to the LPs, you want to have convinced them that yours is a stock worth holding in their own portfolios. You won’t convince them all but, if you do a good job, there won’t be quite the same rush to sell on distribution as there would be otherwise."
