The Academic vs the Non-Academic Approach to Raising Capital

When it comes to figuring out whether a venture capital, finance company, angel investor or early-stage private equity firm is up to snuff, there is the non-academic approach and the academic approach.

First let’s look at the non-academic approach, common sense. First let’s check out the “what ifs.” For one, be leery of firms that are either too exclusive or let on like they are too exclusive for you.  Let them remain exclusive, inclusion and flexibility is the key in your financing partner, which is what they are; a partner in your business at the end of the day. Besides, a fund manager named Bernie Madoff was one of the most exclusive of them all, if you remember.

Moving right along, professionalism and organizational aptitude, or the lack thereof, should be a deal maker or breaker. Would you seek funding from a group if the web site of the financing firm in question is under construction? Would you want to give money to a company like that? The answer is: move on immediately. Next, if your initial contact has a business card with – or gives you an e-mail address containing — gmail, yahoo or hotmail as domain names, this is usually a huge red flag. This is usually a sign that he or she is just starting out like you, is too lazy to get a professional domain or is actually behind where you are. Or, in rare cases, this person is being overly secretive about giving out their contact info for the sake of being secretive. None of these reasons are good.

Plus by this stage in your funding research aims, you should know what your goals are and be savvy enough to read these signs.

Now for the academic approach, tracking performance, which is a bit trickier but there are ways to nail down the particulars.

In their mid-2009 scholarly article that few read except for other scholars, Richard Smith of University of California at Riverside as well as Roberto Pedace and Vijay Sathe of the Claremont Colleges lay out several criteria for tracking VC firm performance which are pretty on point from both a pedestrian and expert level.

They came to the conclusion – let’s give you the Black Web 2.0 version – that firms with the best exit strategy track record for the companies they fund, are among those to look at closest. Also don’t think that a VC firm that wants out after the initial investment is shady because that’s not necessarily true. This group of academics also found that VCs that get out of investments early, tend to outperform investment entities that retain a portfolio of start up companies over longer periods.

As this blog has stated before, experience and good experience in the industry you plan on entering or are already in, is a good barometer for the VC you want to hit up.

About the Author
Jabulani Leffall, 33, is an award-winning journalist and writer who attended Journalism School at the University of Missouri. His work has appeared in the Financial Times of London, Dow Jones Marketwatch, The Baltimore Sun, Investor's Business Daily, Variety, CFO Magazine, Compliance Week, Redmond Magazine, Black Enterprise, the Los Angeles Business Journal and the Los Angeles Daily News among other publications. He has been a George Washington Williams Fellow for the Independent Press Association where from 2002 to 2004 he studied the effects of subprime lending on poor communities. After what happened in 2007 and 2008, he feels vindicated as a journalist for having called what was going to happen. What else? Yeah, he also contributed vital research to the 1998 book University of Missouri History Professor Robert E. Weems, which is titled "Desegregating the Dollar." Additionally, he has appeared numerous times on ABC World News and CNN as a commentator of business and world affairs, again pretending to know what the heck he is talking about. Mr. Leffall is currently a the Associate Editor of Special Projects and content with FactSet Research Systems News and Media Relations Group. Lastly for the part where Mr. Leffall lives, he resides in a four cornered room where he stares at candles and his mind plays tricks on him. Read his articles and blogs please lest he go completely mad.
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