Venture Capital firms, like any investors, like to be as close to their investments as possible, and that often means being physically present. We may be in the age of virtual presence and video conferencing, but nothing beats sitting right across from a real person and figuring out tough problems.
Therefore, you can expect to see a strong preference by venture capital groups to invest in their local areas. Anywhere an investor can reasonably get there and back within the same day is usually a safe bet. Not surprisingly, venture capitalists want to be home for dinner like everyone else.
It's certainly not unheard of for venture capital groups to invest outside of their neighborhood; it just presents more of a challenge than a local investment. As the entrepreneur pitching for capital, your chances are almost always better with investors that are close to home.
Funding Stage and Size
Not every venture capital firm invests at the same "stage" of a company's investment lifecycle. Some venture capital groups invest very early in a company's development, and may go in as early as the actual inception, although this is rare. That’s usually the domain of Angel Investors.
Venture Capital groups define their stage of investment differently, but you can think of them in roughly three categories:
Early Stage - The company probably has not raised money previously or has had a few angel investments but is still early in its formation. These rounds tend to be less than $2 million and are used for just getting the company off the ground.
Traditional VC - This is the most common type of venture capital stage, where the first round of investment ranging from $2 million to $10 million is invested in a company. The company is probably already capitalized by angel investors who put in the first $1 million or less.
Late Stage - The company has taken on at least one round of venture investment (or a similar structure) and is now going on to much later and larger rounds, probably in excess of $10 million or more.
You'll want to understand what stage each venture capital group puts their money into a company so you're not talking to a Late Stage investor about an Early Stage opportunity. These funds are typically geared toward a particular stage of investment because that's where they believe the opportunities lie.
A side note here – the “stage” tends to be more of a preference than an absolute barrier. You should know what stage they prefer to invest, but you shouldn’t discount a firm solely based on being in the wrong stage.
Portfolio (Extra Credit)
Within the venture capital group's industry focus lays their existing portfolio of investments. Nothing is a better indication of what types of investments they make than looking at the places where they've actually written checks.
After you've found a venture capital group that seems to invest in your industry, digging into their portfolio companies will help you understand what types of companies within the industry they have an affinity for. You'll also be able to find out which partners have made those particular investments so you can target those individuals for your own introductions.
Ranking Your Venture Capital Network Search Results
Once you've filtered your list by Industry, Funding Size, and Location, your next objective is to rank them in order of which you want to contact first.
This is where our friend the Internet comes in handy, and more specifically, popular social networks. What you'll first want to find is which firms you may have some sort of warm introduction to. Search the names of the partners or the firms in all of your most connected social networks like Facebook and Linkedin. Your best introductions are going to come from firms where there is some pre-existing relationship.
If that doesn't yield any results, your next best bet is to start with firms that may be within driving distance to you. It's easier to get a meeting with someone locally than it is far away, all things being equal. Local firms often are more receptive to local companies because they feel comfortable with a local connection.