What Founders Get Wrong About Picking a VC

Most founders approach VC selection backwards. They rank firms by prestige, get excited when a brand-name fund shows interest, and optimize for the highest valuation on the term sheet. All three instincts are wrong.

The decision of who to take money from is one of the three most consequential decisions you will make as a founder. The other two are who to co-found with and what to build. People agonize over the product and the co-founder. They speed through the investor decision because they are relieved someone said yes.

You are not picking a firm. You are picking a partner.

Sequoia Capital has over 30 investing professionals. Some are phenomenal. Some are fine. The experience of having Sequoia on your cap table depends entirely on which partner leads your deal.

When a partner leads your round, they are committing to sit on your board for 5-10 years. They will be in the room when you are deciding whether to pivot, whether to fire your co-founder, whether to sell the company for $50M or keep going. This person will have more influence over your company's trajectory than anyone except you.

Before taking a term sheet, talk to 5-7 founders in that partner's portfolio. Not the ones the partner introduces you to. The ones you find on your own. Ask: when things went badly, what did this partner do? How responsive are they between board meetings? Have they ever helped you hire a key executive? Do they push for exits when the company is not performing?

The answers will tell you more than any brand name.

Check size fit matters more than you think

A common mistake: taking $500K from a firm that writes $10M checks. They will treat you like a rounding error. Your company will be portfolio filler, not a core bet. When you need help, you will be competing for their attention with the company they put $10M into.

The reverse is also true. Taking $3M from a firm that normally writes $500K checks means they are overextended on you. If the next round is hard, they may not have reserves to bridge you.

The sweet spot: your round size should be 10-30% of the lead investor's typical fund deployment per deal. If they have a $200M fund and make 20 investments, their average check is $10M. Your $3M round is too small for them. Find the firm where your check size is in their sweet spot.

Follow-on is the hidden variable

Here is a question almost nobody asks during fundraising: does this firm have a follow-on strategy, and will they use it on me?

Some firms invest at seed and never follow on. Their model is to spread bets and let the winners get picked up by Series A firms. Other firms reserve 50% of their fund for follow-ons in their best companies. The difference to you is enormous.

A firm with follow-on reserves can bridge you if your Series A takes longer than expected. They can participate in your A and B rounds, maintaining their ownership and signaling confidence to new investors. A firm without reserves cannot do any of this.

Ask the firm directly: what percentage of your fund is reserved for follow-ons? Of your last fund, what percentage of portfolio companies did you follow on in? If the answer is "we evaluate it case by case," that usually means they do not follow on.

The valuation trap

Optimizing for the highest seed valuation feels rational. It is not.

A $15M seed valuation versus a $10M seed valuation saves you 5% dilution today. But if the higher valuation came from a worse investor — someone who will not help with recruiting, who will not make introductions, who will not follow on — you have traded lasting value for a one-time savings.

Worse: a high seed valuation sets expectations that are hard to meet. If you raise at $15M pre and need to show $1.5M ARR for a "fair" Series A at $50M, you have a higher bar than the founder who raised at $10M and can show the same traction at a lower bar.

I have watched founders celebrate high valuations, then struggle to raise their next round because they could not grow into the number. The markup-to-down-round pipeline is real. Take the reasonable valuation from the great partner over the inflated valuation from the absent one.

The actual checklist

Before accepting a term sheet, know the answers to these questions:

Who is the partner? What is their board portfolio look like? Do their founders actually like working with them? What is the firm's follow-on strategy? What percentage of seed investments do they follow on in? What resources does the firm offer beyond capital? Recruiting help? Customer introductions? Technical advisors? Does the check size match their fund strategy, or are you an outlier? How do they handle companies that are not performing? Do they push for fire sales or give founders time? What is the firm's track record with diverse founders, if that applies to you?

This takes work. It takes 2-3 weeks of reference calls and research. But you are choosing a business partner for the next decade. Spend the time.