Sorry . . .They Are Just Not That Into You.
Why you didn’t land that venture investment (and why it may not be your fault).
In the NeverLand entrepreneurial community, a common subject of conversation is fundraising. And not surprisingly, much of it is negative, especially when it comes to raising money from venture capitalists. “They just don’t get it,” seems to be the most common complaint, followed by, “why don’t they want to help?”
Well, sorry. But VC’s have no obligation to help you. That’s not their job. If you want a handout, go to a foundation and get a grant.
A VC’s job is to generate returns for their investors. That’s it. They are not evaluating your pitch based on whether they like you, or whether you have a “good idea,” or whether they can “understand your vision.” Instead, they are trying to figure out if you are building something that other people are going to want, and then whether you have the skills and tenacity to take whatever investment they may give you and multiply it a hundred-fold. And they are basing all this on what you have accomplished so far – rather than on what you promise you’ll be able to accomplish in the future.
If you pass that test, you’re still not home, because VC’s are very limited in the number of investments they can make. Not because they don’t have enough money, but because they don’t have enough time. If they invest, it’s an ongoing commitment. They need to stay on top of what you’re doing, how your competitors are responding, and what’s happening in your product category. If they take a board seat, they will have to attend (and hopefully prepare for) your board meetings. The workload is high enough that over the investment phase of a fund (usually the first 5 or 6 years), they may only make 5 or 6 investments – so one investment per year. And to make that one investment, they may evaluate (both superficially and in-depth) probably 150 companies.
A VC’s investment is rarely a binary decision: “This company is good, so I’ll invest. This company is bad, so I won’t.” Instead, it’s a ranking problem, “of the 30 great companies I’ve seen this year, which is the best of them.”
What can make the process especially frustrating to a new entrepreneur is that the VC will rarely say “no” outright. They won’t say yes… they will want to wait to gather more data, evaluate your progress, see how the space evolves, etc. So, if they aren’t tripping all over themselves to follow up, get you into the partners meeting, and send you the term sheet? I’m sorry, but it usually means they just aren’t that into you.
All of this may be unfair. It may be harsh. But it is the way it works.
Now I’m talking about VC’s. But as you know, there is a class of investors who are willing to invest because they believe in you and what you are doing. It’s called the friends and family round, and it’s called that because… well… because it’s made up of your friends and your family.
They don’t write big checks, so you need to find a bunch of them. And then you need to figure out how to prove your premise cheaply enough that you can survive on that handful of small investments.
Finally, in my defense of VC’s, I will acknowledge that there are certainly bad actors out there. But in my experience that is rarely the case.
I would never have raised my first Netflix round (after a disastrous pitch meeting to IVP) if Tim Haley hadn’t fought to get his partners to fund us anyway.
Netflix would have never made it through the dot com crash if Jay Hoag hadn’t put TCV’s money behind us – and then convinced LVMH to come in as well.
These are smart, helpful, kind people and I count many of them as my friends. They are a critical part of the ecosystem, and they are the ones who make so much of our risk-taking possible.
Getting funding is just one fence to climb over on a journey where you are going to have to climb over hundreds of them.
When you hit that fence, don’t keep running full speed at it in the hope that it will miraculously give way through pure persistence. Figure out a way to go around, to go under, or to take a different route altogether… whatever it takes to get you back on the path and making forward progress. That’s the real job of an entrepreneur.
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