Venture capital is a powerful tool to scale startups, but is it the right tool for your startup? According to major VC investor Kevin Carter, not necessarily. Throughout his career, Carter has invested in more than 1,000 early stage companies, dozens of which have gone on to billion-dollar valuations. He entered early into disruptive companies like Airbnb, Stripe, and Snap — and now his firm Night Capital backs high-potential founders in massive markets. Here, he shares how to decide whether venture capital can take your business to the next level, and if so, which investors are worth partnering with.
So what kind of business is right for venture capital?
In reality, venture capital is a very specialized tool for building a very specific type of business: one that scales rapidly and has the potential to grow to a massive size. For many, many businesses, VC is not the right path.
When should a founder begin considering VC?
Get as far as you can bootstrapping and getting a lot of validation to the point where it becomes obvious. If you should raise venture capital, you’ll know it. If you’re operating in a massive market, and you’re working on something that really starts to click, you’ll start to feel this pull from customers. They’ll be trying to give you a bunch of money, and you’ll realize there’s an opportunity to accelerate everything you’re doing by partnering with a capital partner. There’s so much transparency in the venture capital ecosystem today — if you have a business that’s starting to take off, investors will probably start reaching out to you.
What sort of questions should a founder ask investing partners to make sure it’s a good match?
Ask about the investor’s story, their background. What other companies have they worked with? Who are they working with now? Where does the capital for their fund come from? How do they work with their portfolio founders? What does the cadence of communication look like? In a good scenario, this will be a 10-plus-year relationship, so you want to get it right. You’re thinking of the money first, but also think about all the other components of that partnership.
So what does a good investor bring to the table, in addition to capital?
We’re also kind of a service provider. We’re there to help when founders have issues — good or bad. Typically, those are bigger inflection points: fundraising, hiring talent, governance in operational issues. Internally, I do a lot of connections to other experts in my network. But different investors play different roles with their portfolio founders. When a founder is at a very early stage, raising the first round or two, they’re kind of orchestrating a syndicate of investors that come together. You want to think about bringing on a group that is going to help across the vectors that could be useful for your business: finding some investors that have some operational experience and might be more hands-on day-to-day in operations, investors who have a big network and can make connections for future rounds of funding, and investors who have a specific domain expertise and are able to provide insights based on their specific knowledge of a specific industry. All of those can be valuable.
How much can founders ask for advice when facing problems without worrying they’ll shake investor confidence?
You should feel comfortable going to them. Transparency is hugely valuable. The founders who are sending regular updates, notifying investors about issues as soon as they arise — they are going to do better. If you have the right investors around the table, they’ll be expecting problems. They’re there to help solve them.
I’ve got to ask about AI. In Q3 of this year it accounted for 62.7% of venture funding. But there’s also a lot of talk about a bubble. When they pitch, should founders be leaning into AI features?
With everything that’s happening in AI, the barriers to entry for building something of value have gone down dramatically. But I think the important thing is still building something of value to customers, that they are gonna wanna pay for. I think worrying about the optics of pitching a company as AI is focusing a bit on on the wrong thing. Finding what you’re genuinely passionate about and meant to do is extremely important. It cannot be talked about too much. You don’t need to build something in AI just because you keep hearing people talking about AI.
Related: After Bootstrapping My Tech Company for 25 Years, Here’s What I’ve Realized About Funding
Venture capital is a powerful tool to scale startups, but is it the right tool for your startup? According to major VC investor Kevin Carter, not necessarily. Throughout his career, Carter has invested in more than 1,000 early stage companies, dozens of which have gone on to billion-dollar valuations. He entered early into disruptive companies like Airbnb, Stripe, and Snap — and now his firm Night Capital backs high-potential founders in massive markets. Here, he shares how to decide whether venture capital can take your business to the next level, and if so, which investors are worth partnering with.
So what kind of business is right for venture capital?
In reality, venture capital is a very specialized tool for building a very specific type of business: one that scales rapidly and has the potential to grow to a massive size. For many, many businesses, VC is not the right path.
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