KITSAP/BUSINESS—Venture capitalists are simple people: they’ve either made up their minds to invest and are convincing themselves that their gut is absolutely right (a.k.a. due diligence), or there’s not an opportunity in hell that they’ll do so. While they may be grounded, they’re not necessarily forthcoming, so if you think it’s hard to get a definitive YAY! out of a venture capitalist, you should try to get a conclusive NAY!.
Alas, entrepreneurs are also simple people: if they don’t hear a conclusive NAY!, they assume the answer is YAY!. This is why there’s so much miscommunication between venture capitalists and entrepreneurs. To foster a more significant connection between the two groups, here is an expose of venture capitalists’ significant lies that every business owner( small or big) in Washington state and worldwide should know. Let’s Begin!!
“We can make a quick decision.” Sure, the firm could make a quick decision—after all, it’s not their money they’re risking, but the firm never does make a quick decision because the partners are not the bold, swashbuckling, innovation catalysts they purport to be. They are risk-averse like most people in the financial sector and like to follow the crowd.
“I liked your company, but my partners didn’t.” In other words, “No.” The sponsor is trying to get the entrepreneur to believe that he’s the right guy, the smart guy, the guy who gets it; the others didn’t, so don’t blame him. This is a cop-out; it’s not that the other partners didn’t like the deal as much as the sponsor wasn’t a true believer. A true believer would get it done.
If you get a lead, we will follow.” In other words, “No.” As the Japanese say, “If your aunt had balls, she’d be your uncle.” She doesn’t have balls, so it doesn’t matter. The venture capitalist is saying, “We don’t really believe, but if you can get Sequoia to lead, we’ll jump on the pile.” In other words, once the entrepreneur doesn’t need the money, the venture capitalist would be happy to give him some more. What you want to hear is, “If you can’t get a lead, we will.” That’s a believer.
“Show us some traction, and we’ll invest.” In other words, “No.” This lie translates to “I don’t believe your story, but if you can prove it by achieving significant revenue, then you might convince me. However, I don’t want to tell you no because you might be the next Google, and then I’d look like a total orifice.”
“We love to co-invest with other venture capitalists.” Like the sun rising and Canadians playing hockey, you can depend on the greed of venture capitalists. Desire in this business translates to “If this is a good deal, I want it all.” What entrepreneurs want to hear is, “We want the whole round. We don’t want any other investors.” Then it’s the entrepreneur’s job to convince them why other investors can make the pie more significant as opposed to reconfiguring the slices.
“We’re investing in your team.” This is an incomplete statement. While it’s true that they are investing in the team, entrepreneurs are hearing, “We won’t fire you—why would we fire you if we invested because of you?” That’s not what the venture capitalist is saying. What she is saying is, “We’re investing in your team as long as things are going well, but if they go bad, we will fire your ass because no one is indispensable.”
“I have lots of bandwidth for your company.” Maybe the venture capitalist is talking about the fiber-optics line into his office, but he’s not talking about his personal calendar because he’s already on ten boards. Counting board meetings, an entrepreneur should assume that a venture capitalist spends between five to ten hours a month on a company. That’s it. Deal with it. And make board meetings short!
This is a vanilla term sheet.” There is no such thing as a vanilla term sheet. If term sheets are ice cream, the most common flavor is Rocky Road. You need an experienced corporate finance attorney—as opposed to Uncle Joe, the divorce lawyer—to navigate the complexities and traps of terms sheets.
We can open up doors for you at our client companies.” This is a double whammy of a lie. First, a venture capitalist can’t always open up doors at client companies. The client company might hate him, and the worst thing in the world would be a referral from him. Second, even if the venture capitalist can open the door, entrepreneurs can’t seriously expect the company in question to commit to their MVVVP.
“We like early-stage investing.” Venture capitalists fantasize about putting $1million into a $2 million pre-money startup and ending up owning 33 percent of the next Google. That’s early-stage investing. Do you know why we all know about Google’s fantastic return on investment? For the same reason that we all know about Michael Jordan: Googles and Michael Jordans hardly ever happen. If they were expected, no one would write about them. If you scratch beneath the surface, venture capitalists want to Invest in proven teams (for example, the founders of Cisco) With proven technology (for example, the basis of a Nobel Prize), a market (for example, e-commerce),