As most readers of this blog probably know, venture capitalists are basically finance managers. They manage a portfolio of companies, investing money into those companies on behalf of their limited partners, and distribute profits, if any, to the partners. Most funds are set to run ten years, though distributions may be made sooner. One piece of advice I would offer to founders is to find out who the limited partners are in a VC fund of interest to you. Consider that part of the due diligence you should perform on any investor, as I blogged about previously.
When we started Course Technology, Inc. we were complete rubes when it came to venture capital, but we lucked into an investment from Greylock due to their relationship with MIT, through my colleague Allan Bufferd, who was MIT treasurer at the time. As Director of Information Services, I served on the same administrative committee as Allan.
When we met with Bill Kaiser of Greylock he told us proudly that their limited partners included seven universities, including MIT and Dartmouth, amongst several others. Because Course Technology’s market was higher education Greylock saw a great fit between their limited partners and our venture. Odds are you won’t find such a fit, but you should know who the limited partners are in a fund before you sign a term sheet. That knowledge can provide you invaluable insight into the VC firm you will be working with. While limited partners have no legal or business right to participate in a VC’s investment decisions they can influence those decisions. And connections to them can benefit founders, depending on the venture and the limited partners’ institutional role.
Once you have an investment it would not be out of place for you to request an introduction to a limited partner who might be able to help your firm. This is all part of my philosophy of putting your investors to work for you. They all have great connections – take advantage of them!