I was recently with an entrepreneur and talking with him about his fund raising process. He was in a later-stage financing round and was talking with many investors.
Some started asking him for very specific analyses to be completed on his data and wanted his company to crunch the numbers. I told him he shouldn’t bother and that it was likely a junior person at the firm whose job is was to find holes in the data/narrative.
I told him,
“I know we don’t yet have a term sheet so you feel you need to listen to everybody’s request. But imagine you were expecting two term sheets imminently. How would you act then? If you don’t act like that now then everybody will smell it — even if they don’t acknowledge it to themselves.”
And my specific response that I recommended was to say,
“I can send you our standard data pack but honestly I have too many other firms asking for customized data and we simply can’t send each person custom reports. If you’re further along in the process and you have one piece of information you need for a final decision then I’d be very happy to talk to you about it then.”
Another entrepreneur was recently in my office. She had emailed with a partner at a big VC fund and he had passed the request to a junior associate. That in itself can be fine in some cases but that associate then asked for a phone call instead of an in-person meeting? I recommended that the founder politely cancel the call because we had other great firms actually taking meetings.
“If you’re willing to take a call then you’re signaling that you have no confidence in your process given you already have other in-person meetings. Tell her that you’ll gladly bring the deal back to that firm in the next fund raising round but that you need to prioritise your time for firms where partners have already had in-person meetings.”
This isn’t rude — it’s just respecting your personal time and your fund-raising process as much as you’d respect the VCs time. So she called the associate, cancelled the meeting and the young associate came to visit her office that very day.
Why? How Was I Sure That Would Happen?
I told the founder, “No associate in his or her right mind would want to tell a partner that Sequoia funded this deal and the reason we didn’t see it is because I set up a call instead of an in-person meeting.” I knew she’s come see you.
Of course, you have to be careful with this. You have to be sure that you’re actually qualified to raise VC, that you CAN get other meetings and you have to be very polite when you state your reasons why their request doesn’t work.
But confidence is CRITICAL in fund raising. Investors are human and humans want what they can’t have and what they perceive other people want. It’s human nature — just read Cialdini and others on this topic. We don’t think we work that way, we do. If you don’t act in demand, people will subconsciously know you’re not in demand.
The same thing happens to VCs. We have consultants who do research for super big funds who invest in VCs and they have checklists they want you to fill out in order for them to do their work.
I find it infuriating because it asks such basic questions that they could find out themselves but they want you to do the work.
I think it’s a smokescreen. I know bigger firms sometimes hire people just to fill out the data but I mostly refused.
I told them,
“We’re already over-subscribed in our round. If you want to invest we might make room but we don’t have time to fill out forms for every consultant. If you want to come visit us you’re welcome to.”
Of course if they did some initial work and were leaning in to make an investment then we’d spend time helping them. But they had to show they were committed. I was self-confident enough to turn them away if they didn’t do work.
There is a delicate balance between confident and arrogant and of course the former is what you want. You have to realize that every VC has had hot deals come through their offices that they had to chase hard to try and get into because they “knew” everybody else was chasing.
VCs will literally drop everything else they’re doing when they’re in that situation. It’s the gold standard you’d love to strive for, but very few deals ever get that “hot.”
But if you can bottle up just a little bit of that feeling, if you can channel just an ounce of your best FOMO juice and if you’re willing to accept taking just a few more self-confident risks in your process — it will go a long way.
[This post by Mark Suster appeared first on bothsidesofthetable and has been reproduced with permission.]