The VC "don't do that" List

Last week was interesting and very busy. I had 25 NHNF meetings which is higher than normal.  Interestingly, there were quite a number of folks from outside Canada looking to bounce what other VCs had told them off of me. 

I've started to compile a "don't do it" list of things I think the VC community, as a whole, should try to stay away from doing. 

Here are the beginnings of that list.

1. Don't be rude.

I know this seems like the biggest "duh" in the world but it is happening more and more these days.  I'm believe you have two ways to track VC investment cycles (bubbles if you will). You can -and I do- subscribe to Paul "the chart -n- stat maven" Kerdrosky and simply watch how polite or rude the VC is across from the table.  Good times for them/us, rudeness for you.  This is just a theory, I only have about 6 million horror stories on treatment, so I'll get back to you with more data.

2. Don't ask for the house.

If you commit fraud and steal from me, I'm going to introduce you to some really excellent lawyers.  Having said that, I don't believe having a start up team put their personal property up as a founder indemnity. It's just generally a bad way for the business to work and all the love to be shown by both parties.  Suzanne Dingwell Williams, a great lawyer for you to know, has a longer post here. I agree with her 94%. Just wouldn't be fun if it was a blanket 100%.

3. Don't ignore the word No.

I'm amazed and saddened when a CEO comes into the office telling me about the great conversation with a VC down the road or over the border.  They are moving forward, I'm eagerly told.  Awesome, I say. One phone call later, I find out from the VC they aren't really interested.  Using the word no, as it turns out, is a wonderful tool that earns and not burns respect with the start up community.  They value their time; they appreciate a fast no.

4. Don't go fishing in Lake Competition.

I'm not sure there is anything more reprehensible then a VC firm sending an analyst out calling competitors of portfolio companies in the hopes of getting information.  Most VC firms know that most jr. CEOs will get all goose pimply and shoot thy mouths off before even so much as looking at the VCs web site which -of course- will show the competition.  I don't believe a VC firm should invest in competitive companies, others disagree.  My advice is that if you ever get a random call from a VC firm, ask that question first.  If you are a VC firm, don't do this stuff, gives us all a bad name.

5. Don't forget the handshake.

I always like movies where there is a financial thing going on and the high powered types go "done" and billion dollar deals happen.  My cousin works on Wall Street and I've had an opportunity to watch, up close, some of the trading desks with the Cramer like screaming and 'done' happening.  We don't do that. We have lawyers and paperwork and wiggle room.  The handshake and 'done' is a lost art, for sure, but it might be making a bit of a come back on both sides of the VC investment table.  Two personal examples for you:

• Stu Philips of Ridgelift Ventures is a great example of a VC who has tons of experience and just does it the right way. He has a must read blog here, but more to the point, believes in the handshake.  Stu and I are working on an investment together.  I met him, he met the team, talked about it with me and, in the end said, I'm in.  The paperwork is behind but Stu is in. He is being treated like he is in, getting materials, participating, etc.  And if we sold that company tomorrow, he would get his cut despite the fact that the paperwork isn't done and he hasn't wired the funds in.  That's how strongly I believe in the word "done" and how much respect Stu can command. 
• Second example is on the other side of the table: Howard Lindzon of Wallstrip fame.  He was in my office, talked about it and I said, let's do it/done.  The money is being wired, paperwork to follow.  One handshake later, I'm getting updates, materials, etc, etc.

It's possible for some trust, civility, and honor to actually sneak it's way into this business. Stu and Howard are two of the more notable examples, hopefully, there are hundreds if not thousands out there.

That's the first five, more coming.  Have a great week.

Comments

[Ed Lee]

Hopefully trust, civility and honour will sneak into business in general - no need for VCs to have a monopoly on money and good manners.

Ed

[howard lindzon]

Thanks Rick - Good to have a fellow canadian on board.

[Randy Charles Morin]

Great article, as a startup junkie you hit all the nails that I hate about VCs.

1. I've met a few times with a bright VC from Toronto ;-) Everytime, I'm amazed just how rude this guy is and yet people just keep coming back to him.

2. The house is another issue I once had with a startup. The CEO and President were both personally responsible for the convertible debt the VC gave us. This led to cutting corners everywhere and made success impossible.

3. I'm gonna bet the startup almost always knew the answer was NO from the other VC and was simply using this as a ploy.

5. If I had a dollar for every dollar promised and not delivered...