I love VCs. The more sophisticated the VC, the more I fall for their charm. After all, they have what it takes to be in that exclusive class – they have the money, the power, the professional pedigree, and yes, the all-knowing demeanor (after all, in just a few meetings they decide whether you are worth investing or not). In the past eight years, I have had the privilege of interacting with the who's-who of this community. And it always leaves me thinking, Wow, they know so much! Yet with each passing year, I must admit I am also getting a little wary of some of them. The stories that entrepreneurs come and tell me and the stories I directly hear from them leave me wondering: Do VCs actually mean everything that they say? So, here I bring to you some classic lines from VCs. You may have already heard some of these yourself while others might have reached you through a friend who made a pitch.
#1. We back founders/founding team
While this may be true in some cases, this is not the key investment thesis, as VCs would have us believe. First and foremost, a proven or what their world perceives as a ‘hot sector’ matters the most. Only then do they look at entrepreneurs. And if the sector is hot and the entrepreneur is not, it really does not matter. Let me not open a Pandora's Box with this one, but the last few years are testimony that brashness and inexperience are all accounted for as ‘young blood’ in their overall thesis. Yes, they also have a preference for youth, much like the world of advertising.
#2. Market size
This is a VC’s favorite area for a detailed discussion with you: market size, market opportunity, etc. When a VC asks you how big is the market and who is your competitor, what they really want to know is whether there’s an analogy available in Silicon Valley (and now maybe in China)? Is there already some proof of concept and some investment validation made in the space? If there are, your chances of getting funded automatically climb higher.
#3. I will come back to you in a few months
What this really means is “I don't know how to say no to you directly. The best thing would be for you and me to forget each other in a few months.” Enough said. And by any chance if we bump into each other at a conference, don't forget to remind me who you are.
#4. You lack what it takes
VCs seem to have mastered this art of making you feel inadequate. If you’re making revenue, then your product is not good enough. If you have a decent product, then your revenue is not strong enough. If you’re a smart founder, then your second line of leadership is not strong enough. If that is, in fact, strong then the market size is not big enough. It never ends.
#5. We are long-term partners
That’s actually an incomplete sentence. They say that much and stop: We are long-term partners. We are long term players. Period. What they leave unsaid is: We are long-term partners as long as you perform. The day you hit a wall is the day I will develop the short-term vision.
So the next time you are turned down, know that it may have less to do with you and your story and more to do with the “hot” market at that time and the "thesis" that the VC is following in his or her mind.
All the best. Be the hero/heroine of the meeting. And don't let rejections get to you. In the end, it does not matter. Our willpower and tenacity are what count.