30 West 3rd

Very Early Stage Technology Investing

Jerks and Venture Investing

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Investment transactions are naturally fraught with tension.  It is hard not to decline to invest in more than 90% of the opportunities you review and not be accused by a fair number of people of being difficult.  It’s certainly happened to me in the last few years.  And, I’ve certainly felt that way myself when trying to raise capital from VC funds.

Investors say “no” for many reasons, and learning not to take it personally is critically important.  First, the “no” might have nothing to do with the company and everything to do with fund dynamics, timing, sector focus, or a competing investment.  You should try to weed these things out before engaging a venture fund, but it is sometimes not always clear.

Understanding a fund’s investment criteria is critical.  Venture investors look for companies addressing very large markets ($$ billions).  They also look for unfair advantages, either from intellectual property or market/customer understanding that is clearly superior.  If you get a series of “no” answers, take time to assess the idea/company and ensure that you are talking to the right kind of investor.  Many angels prefer to invest in companies that may never require venture investment.

Most investors are not jerks, but dealing with competing opportunities and priorities can make for difficult decisions and harried days.  I don’t want to excuse bad behavior.  Venture investors should be reasonably transparent about process, so that you know where you stand.  Meetings should be cordial, candid, and run by a senior person.  Nothing is worse than showing up for a meeting and getting grilled by the summer intern.

Actually, having participated in probably 200+ venture meetings in my career, I have known only a few that went down an unpleasant path.  One was driven down an unpleasant path by the founder, who was misrepresenting another funds term sheet to another firm who knew he was being dishonest.  They simply ended the meeting and walked out.  Another was caused by two partners carrying on a side conversation during a full-partner pitch.  The conversation was distracting and disrespectful in the extreme.  The presenter ended that meeting.  The last was when someone came back to our fund with clear knowledge of our process and requirements, but simply ignored them and asserted we needed to make a decision that day.  I ended that meeting.

In the end the best way to avoid misunderstandings in an inherently tense process is to prepare for candid feedback.  Many of the people that tell you “no” will also volunteer advice and referrals that will be of value going forward.  You’ll undoubtedly meet some jerks along the way (I’m not immune to that accusation), but try to separate the answer from the person.  And remember, everyone has a bad day now and then.

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Written by Mike Venerable

September 10, 2010 at 1:38 pm

Posted in Uncategorized

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