Angels will push up your professionalism and train you to ask, “Where do I take the company? What drives my revenue up? What is my cost management strategy-do costs rise proportionately as I sell more?” Int he mining business, when prospectors or geologists fi nd something that looks like gold, they’ll rub a touchstone across the ore. Th is ceramic stone helps distinguish whether the rock is real or just fool’s gold and is an invaluable tool for assessing the worth of a mineral sample. Investors, too, have their personal touchstones that they use for testing your abilities. “I am oft en asked what Secret VC Toolkit helps us decide where to invest,” venture capitalist Rick Segal of JLA Ventures, says with a smile. “Some people say the Ouijaboard approach works well.” If you know what the investor will be assessing, you can prepare. To get inside the headspace of a hyperintellectual and selective venture capitalist (VC) investor, let’s fi nd out who they are, what their issues are, and what motivates them to invest their cash in your business. CHAPTER 6 WHAT YOU SHOULD KNOW ABOUT VENTURE CAPITALISTS My biggest motivation? Just to keep challenging myself. I see life almost like one long university education that I never had-every day I’m learning something new. Richard Branson, Founder and CEO of Virgin 106 CHAPTER 6 What You Need to Know about Venture Capitalists “Private equity fi rms regard themselves not as assetfl ipping gigolos but, rather, as sophisticated, serial monogamists, always on the prowl for profi table longterm relationships,”1 says Daniel Gross, Slate magazine’s business journalist. It’s true that a private equity investor wants longterm relationships as does a VC. Th e big diff erence is where these two types of investors are to be found on the growth curve of a business-the fund managers are at the mature end while VCs are between the startup and established stages. Although VCs may consider themselves similar to private equity fund managers, they have a far higher appetite for risk and are usually more entrepreneurial, that is, mercurial, outspoken, and able to sum up your abilities in a second. Th ey need to be sharp because they are investing in you and your business, which is not an assured home run. It’s very diff erent for the fund manager who has the business’s longterm history to judge; success does not rely solely on the people in the business or on the potential for technology growth. If you are an early stage business, your fi rst step is to present your business plan to the appropriate VC. However, before we do that, let’s learn why they are drawn to risky people like you. It Always Goes Back to the Relationship “The professional investor’s base personality is not as trusting as the business owner’s,” says VC Ilse Treurnicht, President and CEO of Torontobased Primaxis Technology Ventures Inc. and now The MaRS Centre.