The Worst Thing a VC Can Do

Over the past couple of days, I've met with two different entrepreneurs who were looking to "top up a round" because they believed they has another VC firm ready to go.  I ask permission to call em  -you know where this is headed- and the firm tells me they are either still thinking about it or aren't really going to do it.

In these cases the entrepreneur gets double burned.  First, by the VC saying no and second by another VC -me in this case- now has data that doesn't help your funding efforts.

Fully 90% of this problem is attributed to the lack of a fast and clear no/pass.  No/Pass means just that. There is no "let's continue the dialog" nonsense or any of this "we're interested but need to do whatever" stuff which can lead to the wrong impression being created in the minds of the hopeful entrepreneur.

On the VC side: Folks, just say no.  After hundreds of "no/pass" coming out of my mouth, I can confidently say the overwhelming majority of folks appreciate it. They appreciate the respect shown for their time.  Just say no.

On the Entrepreneur side: Shhhh..  First. You are under NO obligation to tell me who else you are talking to. I'm going to ask; don't tell me.  If you don't have a term sheet, you don't have somebody at the table ready to play which means you should be treating meetings with others as stand alone events.  Telling me that VC firm A is interested is going to generate a call. I may say, cool, I love to work with those guys and of course -with permission- call them.  Unless you have a signed term sheet and that other VC firm is looking for a partner, keep your VC meetings confidential.  Second. Ask for the no.  Does this interest your firm? What is your process to make the call about diving into due diligence?  Find a set of your own questions that ensure you have a crystal clear understanding of where you are at in the process of a particular firm.

Comments

[Peter Cranstone]

Another great post. The single most annoying thing about VC's is there inability to manage expectations. A simple Yes or No is all that is required. However most cannot commit to even that. I've even had a firm Yes, and then it simply evaporated after that.

Now tell me - why on earth as an Entrepreneur would I want to do business with a VC like that? If that's how you treat your customers (the start up's) why do I want to do business with you.

It all starts with mutual respect. I've met a lot of VC's - there are very few I would do business with, simply because they've forgotten what it's like to start and build a business.

Cheers,

Peter

[Dave Winer]

Good advice.

Another thing I tell entrepeneurs -- even after you get an offer from a VC, very carefully find out if their vision of the company agrees with yours.

If it doesn't there's a pretty good chance you're either going to end up working for the wrong company (the one that agrees with their vision) or out on the street looking for a job, with your idea tied up in a company whose vision you don't agree with.

I've seen this happen too many times -- the entrepreneur feels his or her vision has been ratified because the money has come in, but the VC was thinking something else when the money was invested.

[howard Lindzon]

ask for the no is important just like asking for an order. don't waste your own time hoping

[rhhfla]

You might have also mentioned that truly interested VCs commonly organize the additional firms to "top up" the round and don't leave it up to the entrepreneur to find some firm (they have never worked with before).

[Boyd R. Jones]

What, however, should one do when you have 2 VCs who have clearly stated "we want to follow any lead investor?" Do you then indicate to other VCs that they could be that lead investor? Or are the VCs expressing interest to follow somehow not up to snuff? In any event, this is a situation I am currently encountering here in Asia (this may be a cultural issue?).

[Guruprasad]

Go for bootstrapping instead of VC funding.