Raising funds can be very challenging, and this is why founders are very hopeful when they find a VC who says he is interested in investing in their company. They are thrilled that they have finally found someone who understands their potential and can see their true worth. They are happy to share their deck with him; attend all the meetings they are called for (at their own expense); and they are confident that their troubles are now at an end, since the cheque will soon be in the mail !
The sad truth is that this interest means very little. While VCs are not trying to “string you along” or take you for a ride, the truth is that most VCs have very little incentive to tell you the truth. Their people skills are excellent, and they would rather be politically correct, because they know there’s no downside to their saying – Yes, I am interested. Very few will flat out say No, because saying No can come back to bite them. For example, if they “pass” on your deal now and your company becomes hot later on, they will lose the chance to invest in you, so they see no reason to upset you by saying no.
Also, since the introduction to the VC is usually through an investment banker who is usually his friend, most will be supportive simply because they don’t want to upset him by being frank and brutal.
They are in no hurry to sign the cheque, and because they know that most founders are desperate to raise funds, they are happy to exploit this advantage. The only way you can counter this is by starting to raise money when you don’t need it; and by setting up a competition between VCs, so that they are under pressure to close the deal with you.
They know that the more time they have to evaluate your company, the more information they can gather about you, and this will help to reduce their risk, as they can see how you perform. As long as it doesn’t cost them to take more time, they often will. While it’s true that VCs often lead founders on, unfortunately many founders contribute to this because they mislead themselves by misinterpreting the pleasantries spouted at VC meetings.
You’ll be surprised how quickly what you thought was a Yes turns into a Maybe. Either the partner is travelling; or you have to wait for their next Board meeting for him to get back to you; or they are sorry, but their US team shot down the proposal; or that the space is too crowded; or they have stopped investing in companies in your domain; or the senior partner needs some queries clarified, so could you please provide more information? They will seem genuinely sorry, but are happy to keep on pumping you for details, until you get fed up, or realise that you are being taken for a ride.
It doesn’t cost the VC anything to be supportive and encouraging, and most of them are happy to stroke your ego. You need to learn to be able to read between the lines and read the VC’s signals properly – what they don’t say is often more important than what they do! If a VC does not insist on a follow-up meeting within 2 weeks, they are almost certainly not going to invest in the next 6 months (unless some other VC decides to invest in you and they want to piggy back !)
At the end of the day, remember that the only thing which counts is money in the bank – even a signed term sheet doesn’t mean that you will get the funds. Sadly, there’s many a slip between the pitch and the cheque!
