There are typically four common ways a VC adds value to a startup: capital, advice, contacts and credibility.

Capital is a relative commodity – any VC that keeps the proper reserves for each portfolio company does this well. One VC’s money is not more green than another’s.

As a result, the real differentiated value that most VCs offer comes from the ability to provide useful advice, contacts and credibility. In my opinion, entrepreneurs can typically assess a VC’s ability to deliver value by reading the bios of the founders. Impressive teams, more often than not, add a lot of value to their portfolio companies. Teams with lots of experience can offer useful advice. Teams with high caliber credentials often have the opportunity to build a large and useful rolodex. Teams that have had success in business can transfer their credibility to their portfolio companies – an investment can be a sign of validation.

In examining the experience of a VC team, consider both their pre-VC experience and the companies that have backed as venture investors. If you receive a term sheet from a VC, consider doing deeper diligence on the team by contacting the CEOs of existing and previous portfolio companies.

While I believe that the quality of a fund’s team is the best indicator of the value that they will add, there are other types of strategic value that a fund can offer. For example, our firm DFJ Gotham is part of the DFJ Network – a global partnership that includes 23 funds (in diverse geographies: Russia, Israel, China, Vietnam, Brazil, etc), 150 investment professionals and 600 portfolio companies. This network enables our portfolio companies to leverage our global rolodex of customers, partners and acquirers and benefit from global intelligence.  While DFJ Gotham is certainly not the only venture fund to add unique value (others bring different competencies to the table), there are many funds that do not offer anything beyond the basic four types of value add mentioned above.  As a result, entrepreneurs should be sure to evaluate both the competency of the venture fund's team and the unqiue resources that they can bring to the table.

Entrepreneurs don’t always have a choice when it comes to picking their VC backers. However, when they do, it’s important to pick a venture fund that can most effectively help their business grow.