Do Your Homework on Your Venture Capitalist

It used to be that entrepreneurs looking for venture capital financing were the ones who had to bear the lion’s share of due diligence and personal scrutiny.  Since most venture capitalists invested in people as much as in products or markets they would often commission detailed background checks on founders that focused on common problems areas such as misrepresentations of employment background, failure to disclose personal issues that might be indicative of character, and a history of litigation or other legal issues (i.e., bankruptcy or DUI convictions).  The concerns of the venture capitalists are understandable given the large sums of money that are in play when an investment decision is made; however, entrepreneurs often felt beaten and battered by the process, particularly when venture capitalists made aggressive demands regarding the terms of the deal and management of the company once the funding was completed.  Recently though entrepreneurs have been provided with a vehicle for leveling the playing field and gathering their own information on prospective financial partners before moving too far down the long road that often needs to be traveled before a venture deal is closed.  The answer?  It’s a new web site called TheFunded.com: The Resource for Entrepreneurs

As noted in an August 7, 2007 article in the Wall Street Journal titled Web Site Puts the ‘Vent’ into Venture Capital: “TheFunded lets entrepreneurs rate venture firms according to five different criteria (track record, operating competence, pitching efficiency, favorable deal terms and execution assistance) and also write reviews of firms and their individual partners.”  Currently membership is screened and limited to current and former founders and CEOs of companies, as well as some senior managers.  Current founders and CEOs can use the site for free while others pay a modest annual membership fee.  Members get to see the entire content of postings while visitors get to see the first few sentences—which may be loaded with feedback that is not welcome public disclosure for venture capitalists.

2 thoughts on “Do Your Homework on Your Venture Capitalist

  1. Alan Gutterman

    As you may know, Inc. magazine reported earlier this month that the founder of the site referred to in the original post was Adeo Ressi, founder of an online video game company called Game Trust. With 4,000 registered users, the site has clearly struck a nerve. I would be interesting in hearing about other strategies founders and executives used to do their own due diligence on funder sources.

    Reply

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