A Quick Guide to Venture Capital Firms
Much is written about venture capital (VC) firms, as news of the companies they fund populates the tech pages weekly. Venture capital firms play a significant role in funding the life science and technology ecosystems around the country and in turn, they boost our innovation economy. So we hear about them and talk about them, but do we really understand how they work? Whether you are in the early stages of a startup or are a little further down the road, it’s good to know how VC firms operate and what that means for your company.
A venture capital firm invests in private companies in exchange for partial ownership. It’s not necessarily a direct quid pro quo in that, in order to increase the chances that your company will be profitable, the firm may bring in managerial/technical expertise, put one of their employees on the board, and/or want a say in how the company is run. Like the companies they invest in, VC firms also have to raise money and they do so through demonstrating their experience and proving their value to, among others, wealthy individuals, foundations, and endowments. These investors fully expect to be paid back, in multiples, in about 5-10 years. Now, just because a firm invests in your company, doesn’t mean it will meet certain success. Estimates have it that only one out of every ten companies that VC firms invest in will be successful. That’s not to say that the companies go out of business, but they simply don’t perform to the expected return.
When you are looking for venture capital, keep in mind that, as Micah Rosenbloom of Founders Collective said in a TechRepublic interview, “As a venture capital firm, we are not in the business of funding inventors or inventions, we are in the business of funding fast-growing companies.” This means that the firm that gives you money is going to be your partner in business. They will be your closest ally and biggest supporter, but they fully expect that you are going to reward them for their investment. You can’t fire your investors, which is why it’s important to research firms and get to know the employees and their culture. Networking with other companies that have worked with VC firms is a good way to find out who might be a good fit. As with any company, VC firms each need to differentiate themselves and they do so in a number of ways like investing in certain regions of the country or in focused sectors like healthcare or defense. Additionally, some firms look to invest in companies at seed stage while others like to get in during expansion. If you’re starting the process of looking for venture capital funding, here are a few that are funding innovation in the DC area compiled by Chris Bing of DCInno.
Maryland Venture Fund (MVF) – A regional leader in the seed and early stage investment game, MVF is a state-supported firm under TEDCO that makes deals with Maryland-based companies.
Arlington Capital Partners – The firm is focused on making a range of investments in industries that are adjacent to the federal space. This includes businesses that build innovative aerospace and defense, government services and technology, healthcare services, and software products.
Swan & Legend – Invests in a wide range of companies including Monumental Sports & Entertainment, CustomInk, Jose Andres’ Think Food Group, Optoro, BigTeams, Anonymous Content, KIND, La Lumiere, SocialRadar, Tango Card, and Quad Learning.
Revolution – The firm may be the most famous venture capital brand from the District. Divided into multiple divisions that respectively focus on different industries and growth stage companies.
Case Foundation – Makes “impact investments” via different programs and initiatives into social good companies.
New Enterprise Associates – Known for being very well funded, NEA invests in information technology, healthcare and energy technology companies at all stages in a company’s lifecycle, from seed stage through IPO.
Razors Edge Capital – The firm invests in private technology companies that work with the defense and intelligence communities. This includes, but is not limited to, data storage, satellite, drone services software and IT service companies.
Middleland Capital – Specializes in making investments in two distinct groupings. The first being: e-commerce, data analytics, software services, health-tech, and communications startups.