The Startup Experience: Lesson 1 - VC's are Really Nice People

In the course of business one meets a lot of people.  I must say that VC’s, as a group, are some of the nicest and friendliest folks I have ever met. VC meetings are almost always friendly events over espresso drinks and cookies with great banter and polite questions. Every meeting seems to end well with hearty handshakes and commitments to follow-up.

And this completely screwed me up.

The frame of reference I was using to evaluate my performance were my past experiences selling products to customers.  I have done a great deal of “pitching” over the years and I believe I can get a good read on a potential customer quickly. I at least know when a deal is possible and when it’s not going to happen. By the end of a meeting, I usually have a good handle on the likelihood of success.

But not with VC’s

As we started talking to VC’s I simply couldn’t get a handle on how we were doing. The initial meetings that seemed to be the most positive typically turned out to go nowhere.  I simply had no radar with a VC so I had to reset my thinking.

First, VC’s are not customers.  Customers have another primary objective (that is NOT buying your product) and view you (the provider) as simply a means to an end. Consequently, they will be pragmatic, clear and sometimes forceful about their needs and how you might fit. Most will be very clear at all times about where you stand and why.

VC’s on the other hand are effectively being paid to listen to startup pitches. It IS the means to an end in terms of their objective of making successful investments.  As it is often the case that VC’s you meet raising an early round might want to be involved at some later point (like when you’re Facebook), feedback is often muted or even changed to things like “we are just raising some new capital right now so we can’t invest” or “you’re a bit too early for us” or my personal fave “we love your company and what you are doing but we are just too conflicted right now.”

While these reasons may all be somewhat true, don’t think for a minute that, if they really thought you were going to be the next WhatsApp, they wouldn’t find a way to invest. Why do you think they took the meeting?  It also makes sense for them not to provide harsh feedback.

So, after burning through a number of VC’s that I thought were “high probability” deals, and wasting a bunch of time on follow-up meetings (that I should have understood would lead to nothing) I realized that we needed to step back and regroup. I went to a friend and mentor (who is also a VC-backed CEO) and got some great advice, one element of which was to engage a VC with the sole intent of getting some frank feedback. He connected me with one of his Venture partners and he agreed to a meeting with specific purpose of giving us feedback.

The meeting was eye opening. While he had certain concerns around things that we could not change (market risk, competitors), many of the concerns were a result of sending the wrong message and were “correctable.” Based on this feedback, we changed both our approach to VC meetings as well as our message in the meetings. 

My recommendations to improve both your likelihood of success and minimize wasted time are:

1. Do dry runs with Advisors or friendly VC’s that are willing to be very critical. Some risks and concerns will not be able to be eliminated but there will definitely be some changes you can make to improve your pitch.
2. Eliminate the lame excuses and/or mis-alignment with an up front phone call to confirm the basics. Confirm the VC has an open fund with available capital and that they regularly invest in products in your segment. Make sure they normally invest at your stage and don’t see any conflict with existing portfolio companies. This saves you time and also insures that, if they say no, you are more likely to get helpful critique.
3. Mention up front in your presentation that you really want their full and honest feedback and allow time for it in your meeting agenda. If the VC knows you are open to hearing their concerns they are more likely to be forthcoming.

Mark…

 

 

Comments

[Polly Pearson]

Hi Mark! Love that you're writing this series! I just finished raising a B round so believe me I'm smiling while I read. A mutual friend of ours taught me an acronym that helped illuminate the VC pitch dynamic. "SHITS" Show High Interest Then Stall. hahaha -- funny when it's all done. Painful as heck in the race to cash. Looking forward to your future posts. Polly