When raising capital, not all startups have options—they only receive one term sheet from one interested investor. And that should be celebrated. However, some startups are “hot” enough to attract multiple VCs. In such cases, the prevailing determinant on who to select is to go with the investor offering the highest . While pre-money valuation refers to what a company is valued at to funding, post-money valuation is what a company is worth following the investment that is about to be made. post-money valuation prior On the surface, going with the higher valuation makes a lot of sense, since there will be less dilution of your ownership of the business that you’ve built. For example, a $2 million investment into a company valued at $10 million post money buys a larger percentage (20%) of the business than the same $2 million invested in a company valued at $20 million post money (10%). Valuation is also a proxy for how much hard work you’ve put in. It’s a very tangible confirmation that an outside party values your business and is willing to invest in it. And a higher valuation, perhaps more than anything, holds some vanity value, since people naturally assume the higher the valuation, the more innovative and successful your company is. All that being said, going the route of highest valuation isn’t always the best path, and sometimes it can even be shortsighted. Why? Let’s look further. A VC Partner Should Offer More Than A Checkbook While money is, of course, the main impetus for seeking investors, there are other aspects to consider. The right investment partner will offer your business guidance based on their experience successfully scaling other startups. Conduct an evaluation of your team’s strengths and weaknesses, and then choose an investment partner that can help to fill in the gaps. If your startup has real potential, you probably know your product or service well, and have created a solution that solves an acute need in a market. But that doesn’t mean you know every aspect of how to run and grow a business, especially one that is growing quickly. For one, think about the operational aspects of scaling a business. How do you acquire talent? How do you set up a sales team and compensation model? What is your go-to-market strategy? How should you handle and deal with different types of HR issues? These are the types of questions that success will inevitably bring. You should choose a partner that not only provides capital, but also provides guidance in these and other unchartered, and often inexperienced, areas. All Investors Aren’t Created Equal When the courtship is in full bloom, many VCs will express their intent to be hands-on with their investment. But it’s up to you to conduct due diligence. As stated above, you need an investor that can give you support beyond cash. How do you know what that means? Talk to other companies in the VC’s investment portfolio to determine their level of actual involvement. In the early stages of a startup, those that have active investors behind them are more likely to achieve and stay on a sustainable growth path. Also, just because a VC has turned out some successful companies, are they familiar with industry and have they had success there? While that’s not always a prerequisite, without it there’s typically a learning curve to get them up to speed. Consider investment partners who already know your industry and have similar businesses in their portfolio. For example, if you’re a healthcare IT business, look for an investor that already knows and has experience in that area. your During the courtship, many investment partners will also tout their network. This is important, as it is another proxy for industry familiarity. However, in my opinion, most startups put more weight on “network” when making a decision than is warranted. Some connections can make or break a business, but most only allow for quick feedback on product and positioning. That is helpful, but it won’t beat a repeatable sales model used to attack an industry-wide problem with a killer solution. Is The Chemistry There? How well you mesh with a VC firm can be hard to assess early on because everyone—both you and them—is in “sales mode.” But try to look beyond the smoke and mirrors to get a feel for how well you could work with a potential investment partner. Again, talk to companies in the VC firm’s portfolio to get a good idea of how they operate, and how easy they are to work with. Most of all, go with an investment partner whose opinion you value and trust, as they’ll be your company’s mentor in the years to follow. You need a partner that you can talk to honestly, and that you can also challenge when you don’t agree on something. You should never feel that you have to hide a weakness or problem from them. Investment partners and startups that work best together have an open and honest dialogue. This also leads to better decisions, faster. Look Beyond The Valuation If your business is accelerating, then it’s likely it warrants capital to take it to the next level. If you are fortunate enough to garner multiple, competing term sheets, be thoughtful about which partner you choose. Look for one that can help you get to where you want to go, as opposed to just handing you a check. The VC relationship should be more than just a financial transaction. It should be viewed as a long-term partnership that brings you the best chance for success. About the Author: Mark Flickinger is the COO of BIP Capital , a venture capital firm that takes a partner approach with their investments by providing both operational and strategic direction to help promising early-stage businesses accelerate farther and faster. By providing financial, operational, and other resources, the firm equips its portfolio companies to achieve and stay on a glide path of growth. Flickinger holds a bachelor’s degree from Princeton University, and earned an MBA from the University of North Carolina’s Kenan-Flagler Business School. Starting as an undergraduate, he spent a decade competing as a member of the U.S. National Rowing Team. Flickinger has served on numerous boards at entrepreneurial companies and also works in a key partner role at BIP Capital with a specific focus on post-investment talent acquisition and operational management. Connect with him on LinkedIn and follow on Twitter @BIPCapital . Originally published at https://www.forbes.com .

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