Should Companies Solicit Multiple VCs, or Just One While Fundraising?

Question: If you found out that a startup who approached you was soliciting funding from other sources, would you be less likely to invest in the opportunity? Would you encourage or discourage new startups to negotiate a better deal by looking for more than one VC?

Our Take: As much as we’d like all our potential good deals only like to speak to us, it’s clearly the right decision to speak to as many VCs as possible. First, most VCs will offer you some good, free advice on your venture. Secondly, you’ll begin to develop an opinion about who you’d like to work with. Remember, you aren’t getting just capital from a VC, but a business partner as well. Lastly, competitive pressure for your deal will help you drive a better deal.

In short, you are a smart businessperson to look at your options. We could never fault you or be discouraged from investing by you doing so.

  • Doug

    Can an entreprenuer shop his company around too much, such that VC’s start to lose any notion of exclusivity or of having an inside track? No VC wants to be in an auction situation or used as a stalking horse.

  • Jason

    It’s possible to shop around so much that your deal becomes a bit “tired” but if you deal is sound one and you are dealing with reputable VCs, you’ll pretty quickly decide that you want to focus on a couple of them – as some will stand out with what they bring to the table. Remember, fundraising takes a ton of time, so most people want it over as quickly as possible instead of seeing every VC on the planet.

  • Thanks for the answer 🙂

  • John M

    Does the same hold true for fundraising from angels? Or is it less so, given the more personal nature of it?

  • Jason

    Well, there are less quality angels investors out there, so by that fact there is less of a chance to talk to several folks. That being said, I don’t think any reputable investor will begrudge you testing the waters.

  • ming666

    i have raised alot of PE money – the best way to get the “best” term sheet is to have competition for the investment. that said the highest valuation TS will probably not be the best and more than likely will not be the one you will take.
    NB. that said getting major competition for your termsheet is as rare as getting picked in the first 5 rounds fo the NFL draft.
    do your best.