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Wednesday, March 01, 2006

And that's how a VC says "NO" !

Here I try to list out a few VC rejection statements that often you get to hear.


1. "I liked your company, but my partners didn't.” In other words, “no.” What the sponsor is trying to get the entrepreneur to believe is that he's the good 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 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.

2. “If you get a lead, we will follow.” In other words, “no.” As the old Japanese say, “If your aunt had balls, she'd be your uncle.” Well, 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 Vivek Paul ( Ex-WIPRO, at present a VC ) 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--this is like saying, “Once you've stopped Don Bradman cold, we'll help you tackle him.” What entrepreneurs want to hear is, “If you can't get a lead, we will.” That's a believer.

3. “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 I might be wrong and by golly you may sign up a Fortune 500 customer and then I'd look like a total orifice.”

4. “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. Greed 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 then why other investors can make the pie bigger as opposed to re-configuring the slices.

5. “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 at all. What he 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.”

6. “I have lots of bandwidth to dedicate to your company.” Maybe the venture capitalist is talking about the T3 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 will spend between five to ten hours a month on a company. That's it. Deal with it. And make board meetings short!

7. “This is a vanilla term sheet.” There is no such thing as a vanilla term sheet. Do you think corporate finance attorneys in the U.S are paid $400/hour to push out vanilla term sheets? If entrepreneurs insist on using a flavor of ice cream to describe term sheets, the only flavor that works is Rocky Road. This is why they need their own $400/hour attorney too--as opposed to Uncle Joe the divorce lawyer.

8. “We can open up doors for you at our client companies.” This is a double whammy of lie. First, a venture capitalist can't always open up doors at client companies. Frankly, he might be hated by the client company. The worst thing in the world may be a referral from him. Second, even if the venture capitalist can open the door, entrepreneurs can't seriously expect the company to commit to your product--that is, something that isn't much more than a slick (10/20/30) PowerPoint presentation.

9. “We like early-stage investing.” Venture capitalists fantasize about putting $1 million into a $2 million pre-money company and end up owning 33% of the next Google. That's early stage investing. Do you know why we all know about Google's amazing return on investment? The same reason we all know about Michael Jordan: Googles and Michael Jordans hardly ever happen. If they were common, no one would write about them. If you scratch beneath the surface, venture capitalists want to invest in proven teams (eg., the founders of INFOSYS) with proven technology (eg., the basis of a Nobel Prize) in a proven market (eg., ecommerce). We are remarkably risk averse considering it's not even our money.

I've just been out of a first round Due Diligence meeting with a Client and pasted this blog while waiting for the lunch to arrive. It took ninety minutes to do it even as I didn't have my charger and my PowerBook had been out of gas. You're going to have to be happy with the top nine lies of venture capitalists until “Dear God” ships the PowerBook Vaio.

You can reach me at kmonyb at gmail dot com.

1 Comments:

Blogger Guruprasad said...

I read similar kind of stuff from another VC.It is amazing that you some how has the guts to tell the truth. I'm the guy looking for VC. Have sent emails to more than a dozen whom have promised to send some suggestions even though they don't want to invest in my company. Till date I've haven't received any mails from them. I recently sent an email to private equity guy who promised me that he will definitely send a suggestion even if he is not interested. He has not even send me an acknowledgment. I've decided to start with my own investment by selling my land.Why the hell one should unnnecessarily knock the doors of indecent, but highly qualified and highly confident bluffers. You've courage to say that VCs are like this(article which u've written)

4:33 AM  

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