Five ways you can tell if the VC you’re talking to is being straight with you

One dose of humility I try and keep at the front of my mind is that before I went into venture capital, I was in startup companies, and I had to raise money myself. This means I also had to develop and hone the pitch deck, and meet with venture capitalists.

It’s a good place to put your mind when you’re hearing a pitch from someone. To remember what it felt like to try so hard, and be so eager to hear the good or the bad, to get some feedback, some guidance, some hope.

But something I think we’ve all learned as VCs is how hard it can be to say “no” to someone, and to do it in a way that respects the entrepreneur’s role in the transaction. We look at 400+ deals a year, and fund fewer than four. Saying “no” happens a lot, and happen for a range of reasons, generally not because the company is bad or the idea is bad, but because to fit through our filter, a whole lot needs to line up really well.

So, if you walk into your meeting with a VC cognizant of the fact it’s 100 times more likely you will be turned down than not, well, you better get something back for your time, don’t you think?

So here are the five ways you can tell of the VC you’re dealing with is NOT being as fair with you as you’re being with them:

  1. They took more than they gave in the first meeting. VCs see tons of deals and have relevant experience. Meeting with you should be an opportunity for them to help you. If they view the meeting as a way to feed them, time to move on.
  2. They’ve met with you more than two times without setting expectations. Remember, your time is valuable, and you can’t waste it with folks who can’t articulate a process and put you on a timeline. The process can be “Let me track you for the next year”, which tells you no funding in the meantime. But if you’re trying to raise money now, then you need to know within two meetings if you’re on a path to that, and where that path leads.
  3. They want you to extract all the risk. It’s totally chicken for a Series A VC to tell you they’ll be ready to invest once you’ve proven the business works at scale. Go to a bank instead (assuming you can find one that is lending).  It’s fair of them to ask you to show you’ve validated the value proposition and core assumptions, but that’s different.
  4. They want someone else to lead. What does this mean? “I will give you money if someone else says they will invest first?” This is kind of helpful, but in the end moves you not a whole lot further down the road.  You need someone to lead the round, and firms that wait for another to lead are making essentially a non-commitment, and are leaving a great deal of work for someone else to do.
  5. They didn’t tell you why they said no. This is really important. VCs pass for specific reasons that they discuss in their Monday meetings. Reasons might be “the team has never done this before” or “I think this is a feature of someone else’s platform”. Don’t you think this is important information to know if you’re the CEO? Yeppers, it sure is. You’ll know when you’re dealing with a quality VC when they tell you why they passed, because they know this is information that will help you.

So, a quality VC understands your time is valuable, that they’re in the business of making risky investments, and most importantly, that “no” is an opportunity to impart advice/feedback to help the entrepreneur raise money from someone else where the fit is better.  Whether you raise money from a particular VC or not, it’s the process of the interaction that’s valuable and important.  Success or failure has meaning here, and the high quality VC firms not only acknowledge this, they focus on it.

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