Founders need to chase funders, and one of the most frustrating things for entrepreneurs is to meet up with an investor who seems to be interested in giving them money, and then not hear from them for a long time. This radio silence can be very difficult to deal with because you are not sure how to interpret it. Does this signal the fact that they are no longer interested in giving you money? Were they just taking you for a ride? Or is that they are very busy, and you just need to be patient? Should you remind them? Or will this irritate them? If you keep on pinging them, will they interpret this as a sign of desperation on your part, and use this as a negotiation tool to drive down your valuation?
Many investors seem very enthusiastic and encouraging when you first meet them, but they then keep on asking for additional data and more information before they are willing to engage further. This can be very frustrating, because most startups have very limited runway and cash is a major constraint for them. They usually need to raise funds urgently, and it’s hard for a founder to provide all the minute details which an investor demands when he is are trying to run a company at the same time. While founders understand that investors need time to do their due diligence, what upsets them is that often seem to be using delaying tactics as a bargaining tactic. This delay can cause a lot of frustration, specially when the founder goes out of his way to promptly provide whatever information the investor asks for, no matter how pointless it seems to be. The problem is that their thirst for more data seem to be never-ending, which means you are always trying to play catch up in order to satisfy them. Your hope is that if you can keep them happy, they will be much more inclined to give you a cheque, which is why you are very reluctant to do anything which may upset them, and you do your best to comply.
Founders need to understand that investors have to follow a process because they are investing someone else’s money, and this can often be time consuming because there are so many people involved. For example, with large VC firms, there will be an India office who will need to get approval from the US head office before they can invest. You will need to talk to multiple people at the firm – for example, an analyst, and then the associate, and finally the partner, who will need to get approval from his board. A major problem is that if even one person says no, the deal gets shot down. You need everyone to say yes, and it takes a long time to get all the ducks aligned in order. Each of these people is extremely busy, because they’ve got so many other things to do, so it’s hard even to get an appointment or to get them to pay attention to your particular deal.
While getting the money is a high priority for you, it’s fairly low on their list of things to do, and you need to learn to live with this reality. Try to look at it from their perspective.
Investors see lots of deals day in and day out, and they are not going to get penalized for saying no to you. This is why they prefer passing on a hot opportunity – they know that another one will come by soon. It’s not the end of the world if they fail to invest in the next unicorn, but the last thing they want to do is to put money in a dud, because this reflects badly on their judgment. They will have to do a lot of explaining if they invest in a company which goes belly up, and they don’t want to risk damaging their reputation by taking too many long shots, as this can harm their career.
This is the reason why lots of investors don’t mind building up a huge anti-portfolio, and why they’re very conservative about which companies they will allow into their portfolio. Even though they are supposed to be venture capitalists, their processes are designed to reduce their risk, so that most would prefer to be conventionally safe rather than sorry because they bet on an outlier.
Some of the delay is also a power-play dynamic, because investors understand that cash-strapped startups don’t have the luxury of time. Some will leverage this urgency as a negotiating tool in order to be able to get better terms. However, most good investors value their long-term reputation, and will not take undue advantage of the fact that they have more power in the funder-founder equation. When they take their time, please understand that they are doing it in order to protect their interests. Even though they may have a lot of money, they also have a fiduciary responsibility as to whom they give the money to, which is why they need to be cautious.
