There may be fifty ways to leave your lover, but there are even more ways for the venture capitalists to tell you no. Unfortunately, venture capitalists don’t like to provide unequivocal rejections; they prefer the SHITS technique: show chief interest and stall.
Here are the typical responses (using the term loosely) that you’ll hear:
“You’re too early for us. Show us some traction, and we’ll invest.”
“You’re too late for us. I wish you had come to us earlier.”
“If you get a lead investor, we’ll be part of the syndicate.”
“We don’t have expertise in your sector.”
“We have a conflict of interest with one of our existing companies'” (Trust me, if they thought they could make money with your company, they’d resolve this conflict.)
“I liked your deal, but my partners didn’t.”
“You need to prove that your technology can scale.”
Most of the time, what the investor is telling you is, “When the hell freezes over.” But there are some cases in which investors are genuinely interested but not yet ready to commit. You may eventually get an investment from them, but it will be as hard as herding cats to finish the process.
The key to herding the cats is to get one in the bag rather than coming close to capturing several. It’s helpful if this cat is a big, beautiful, and well-known one, but any cat that isn’t your relative will do because of venture capitalists.
-like a misery-love company.”Continuing to make contact without demonstrable, significant improvements in your story will change your status from ‘persistent’ to ‘pest,’ and nobody funds a pest.”
Winning over a venture capitalist is not only about providing aim, quantifiable, and interesting information through your pitch and references. It’s as much an emotional process as it is an analytic process. Uncommitted venture capitalists are still watching what you do:
Did you follow up by answering questions that you couldn’t answer during the pitch?
Did you provide supplemental information that supports your case after the pitch?
Have you surprised the investor by closing big customers or meeting milestones early?
Have other high-quality investors written you a check?
Persistence along these lines can pay off, and you can provide these types of relevant updates weeks and even months after your initial pitch in your efforts to herd the cats. However, continuing to make contacts without demonstrable, significant improvements in your story will change your status from ‘persistent’ to ‘pest,’ and nobody funds a pest.
Get a corporate finance lawyer.
You need a lawyer and not just any lawyer, but one who routinely does venture capital and early stage financing deals. This means not using a friend or relative who is divorce, criminal, family law, or real estate lawyer. Don’t be stupid: you wouldn’t seek brain tumor advice from a dermatologist, so why would you seek corporate finance advice from a divorce lawyer?
From the diligence to the wire transfer of money, you will need legal advice. In particular, you’ll need it to create a term sheet, the legal document that defines the parameters of an investment. Our friends at Wilson Sonsini Goodrich & Rosati created the fabulous WSGR Term Sheet Generator to help entrepreneurs understand this document.
The generator has forty-eight pages of questions. This should give you an idea of how complex the process is and why you need to get an experienced lawyer. I’ve seen many entrepreneurs risk their financing and spend tens of thousands of dollars to undo the intelligent decision to use a friend or relative to save money.
Pursue a parallel existence
A book’s linear nature may give you the impression that fund-raising and entrepreneurship is a serial process. For example, raise money from crowdsourcing, build prototypes, raise money from angels, launch, raise money from venture capitalists, scale-up, go public, and buy wineries and Teslas.
Fund-raising and entrepreneurship is a parallel process. For example, you may promote a crowdfunding project while meeting angel investors and venture capitalists while you’re asking your friends and family for loans. And this is only one aspect of your parallel existence because you’re also building a prototype, pursuing customers, forming partnerships, recruiting, and training employees.
Get used to it; this is the lifestyle you’ve picked.
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