Mark Suster makes the point that the ideal number of VCs to have invested into your business is 2.
“Many” has benefits but it also has drawbacks. If you plan to do it I highly recommend that most of the VCs be smaller funds and ones who are generally not looking to invest much more after your first round of capital. There are firms with this stated objective – seek them out if you want to load the VC roster on your deal.
There is an obvious pitfall to working with just one VC – if you fall out of love you’re screwed. There are reasons why VCs sometimes don’t support deals once they’ve invested.
In my mind [two VCs is] the perfect scenario. You get all the benefits of the “many” deal without the drawbacks. If you can pull it off, I love the “two-handed” deal. If you’re doing well but need a little more gas to prove yourself, it’s so much easier for VCs to split an inside round. It’s both a smaller check and it’s external validation that somebody else was willing to fund.
Mark ends with some practical advice for managing herds of VCs, for those of us unlucky enough to have this problem:
- Always have a lead: no lead = no one on the hook for tough times.
- Make sure the lead VC is the right lead for your stage: generally, don't raise a $2m round from a $1b VC, or a $10m from a $100m VC.
- Make sure they have enough left in their funds, or are raising the next one soon, so they can fund follow-on rounds.
- Make sure they play nicely: if they don't play nice while they're still trying to charm you while you're raising the fund, they'll get worse later.
- Always pitch outsiders first for follow-ons: it keeps the insiders honest.
- Always make room for value-added angels.
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