I have been out fundraising for a few months now, and my patience is wearing thin. I have a very well-thought-out plan, a compelling deck, and lots of analysis about my model and the market that I email the VCs in advance. Yet, when I get to the meetings, I’m mystified by the process. I know 20 times more than the people in the room about my space, yet they often ask pretty basic questions that I feel I’ve already addressed in the deck. The process seems to involve a ton of meetings and lots of requests for more information, customer references, personal references, get-to-know-you-better meetings…endless meetings! It makes me wonder how your whole industry manages to stay in business! I haven’t gotten a term sheet yet, so I’m wondering what it is I’m doing wrong, since I’m an expert in my space and my plan is, IMHO, brilliant. Help Me Heidi!
— Unfunded Brilliance, Milpitas, CA
Just remember, there are no dumb questions, only Dumb VCs 🙂
OK seriously, VCs don’t have to complete a professional degree nor take an entrance exam to become one, so I presume some knuckleheads do manage to get hired into our ranks. That said, I don’t think dumb VCs are actually your problem. In reading between the lines of your question, I think that there may be a high-order-bit mindset adjustment that could make you better able to win over those hearts and minds in these seemingly endless meetings.
I’ve noticed that some entrepreneurs see venture capital as a formulaic source of money, like a bank or an ATM, and see the process as something to be endured and mastered simply in order to get funding.
Perhaps an illustration will help.
As illustrated above,* our hero, the entrepreneur, is on a venture quest, and he sees a giant bag of money in the distance. However, there is a mean VC standing between him and the money. Luckily, he has discovered the secret incantation, and when he recites it, POOF! The VC disappears, and the money is his to start his company!
This is not how it actually works.
As venture capitalists, we are custodians of money from limited partners, which can include entities like university endowments, teachers unions and pension funds. They entrust this money to us expecting us to give them a multiple of that money back over the next seven or so years. In order to accomplish that, we invest that money in very early stage companies that usually have no intrinsic value — no factories or warehouses full of assets. Instead, we count on the entrepreneur to use that money to build value that we can return to our LPs in the future once there is some form of liquidity, like an acquisition or a public offering.
But here’s the rub — once that money leaves our account, we have little to no control over how it is spent. We have to trust that the entrepreneur is going to do a good job, for many years, to make this magic happen.
And so, before we give any entrepreneur that money, we usually want to assess not only the merits of the company’s plan, but the merits of the entrepreneur or entrepreneurs who will be venturing forth as well. Are they hard working? Passionate about what they are doing? Trustworthy? Ethical? Responsible? Do they have a fixed mindset or a growth mindset? And in order to figure all that out, it takes us time and a lot of questions, and usually also a lot of time together to develop our own sense of how we will be as a team, since the average time from first investment to liquidity is only a little shorter than the duration of the average American marriage (and trust me, it’s probably easier to divorce your spouse than it is to get rid of your VC!)
And so, Unfunded, instead of approaching this as an application process, I’d recommend you approach this as the first steps in a building a beautiful long-term relationship. You are looking for a great partner for the many challenging years you will be pursuing this dream. You want to know a lot about them, and you want them to know about you, so that expectations are well understood. You want to build the kind of relationship that will allow you to go through those difficult times together in an honest, forthright, collaborative, problem-solving way.
Remember that even when they are asking those annoying dumb questions, they are just trying to learn more about the opportunity from you and understand more about how you think. And even though you know tons more about your sector than they do (as you should!) they may have other learnings from all the other investments that they’ve made that could prove valuable to you, so why not take advantage of that?
I fully believe that if your plan is as good as you say it is, this mindset shift to seeing VCs as partners instead of ogres will help you turn those meetings into magic. Good luck!
* thanks to Sabel Roizen for the GIF.