It’s tough, yes it almost feels like it’s impossible but if you’re in the process of raising, don’t give up. In this post, I share my experiences raising capital for my startup Siera between 2018-2021.
VCs are Just People, They are Not Superior to You, the Persistent Founder
VCs are human, they are not superior to you or inferior. They are just other people who have a job that gives them authority over capital designated to be invested in businesses. As a piece of advice to founders, please do not treat VCs as being above you. I made that mistake in my first few VC calls. The moment you let that social setting play out you will most likely not be treated respectfully by a VC and you will certainly not be able to get the money. It will make the VC automatically think they are better than you, or that you are not good enough. That’s not just VC brains, that’s just the human brain and how it works.
As with most other people in a professional setting, you need to be respectful and maintain professional boundaries but always treat VCs to be on the same playing field as you. If you have a truly great company, then the VC will be chasing you. Great entrepreneurs, especially serial successful founders have people lining up to give them money for their next venture. You too one day can be in that position, and the path to get there requires hard work, grit, conviction, and above all, self-respect. Remember, that at some point in their life, Elon Musk and Jeff Bezos were regular, not famous guys, and they still do ordinary stuff like eat food, drink water, poop and brush their teeth 🙂 just like you do.
The VC Rejection
I can understand it’s not easy for VCs to be brutally honest because they don’t want to hurt your feelings. To me that makes no sense, we (startups) after all compete for limited capital in a highly competitive environment. We need every bit of insight and knowledge to succeed in this race. To me, it makes way more sense for VCs to be transparent about why they rejected a company versus sugarcoating it. That way we can fix what is truly wrong.
So I say it again, if you are a VC and reading this, please let founders know truly why you rejected them, most founders can take it.
If you Mr/Ms. VC cannot find it in yourself to be honest about your feedback. You’re just showing me, the founder, that you don’t have the courage/conviction/backbone to be honest about your own judgment call. If I ever worked with you and you saw me make a mistake, you probably wouldn’t tell me why I’m wrong, so what’s the point of having you on the Board? I expect better.
My advice to founders, take VC rejections with a pinch of salt, a lot of the time VCs will not be honest or transparent, or empathetic as to why they rejected you. It’s hard for me to pin this down, but just know that the true reason and the declared reason for rejection can be quite different from each other. You will usually hear bullshit like, we are worried about that other startup raising more money, or we need to see more traction (even when we had paid pilots and customers for autonomous robots whereas other startups have raised several million dollars and were still pre-revenue).
Yes, it is frustrating, and no you should not give up. Please do realize that although VCs think they have developed strong pattern recognition for the winners, the data just doesn’t prove it. If you don’t believe me, listen to this talk by Chamath Palihapitiya, I did you the favor of starting the video at the time when Chamath talks about VC pattern recognition.
The people who work at a VC firm and their misleading titles
There are some recent graduates who barely know how a 401K works but work at VC funds. What I find interesting is that instead of writing their true role in the fund which most likely is analyst/associate, they write investor on their Linkedin profile.
Stop masquerading as an investor when you’re not. Your job is to analyze deal flow, so unless you inherited boatloads of cash from which you have full authority to write a check please be honest about your role and title. You’re confusing the entrepreneurs you talk to, which is detrimental to your deal flow and ultimately your own fund.
For entrepreneurs, please be careful. The first thing you need to do when talking to a person who works at a VC fund is to find out their role and job responsibility within the fund (check the website first obviously). If you’re taking too many associate meetings and not enough or no GP meetings, you’re most likely not getting a deal, the VC associate is just milking you for market data.
You should always ask associates if they are doing digging because they are investing in another company in the same space or if are they truly interested in making an investment in this space and specifically in your company.
The person who has the decision-making authority to write the check is THE investor (usually the GP which stands for General Partner). This brings me to another new fashion in the VC world, a lot of the non-GPs are now listed as partners (Venture Partner, Partner, Investment Partner, etc. are some titles I have seen). These folks also tend to not have any decision-making authority but are rather the gatekeepers to the actual decision-makers, the GPs, or at best influence the GP’s decision-making process. So for those of you who are going out to raise venture capital, adjust your expectations accordingly and find out who you are talking to.
The best VCs
Are respectful, genuine, thoughtful, transparent, and responsive. These are hard to come by. I have spoken to about 100+ and maybe 10-15 fall in this category. With great VCs the responses come within 2 weeks of the last touch point, they are quick to say no if they don’t see a fit, and they are quick to speed up the process if they like you and don’t string you along as most other VCs. Also, the best VCs are humble and respectful. They will usually not insult you or your idea or be demeaning. They may be honest and blunt which you may find insensitive, but it’s usually way better than dealing with the bad VCs. The best VCs also tend to have their own independent opinions.
The worst VCs
A VC who’s never started or run a business in his/her entire life has been the worst in my experience. They are usually more arrogant. I usually discount their advice and words of supposed wisdom.
Let me share one such example, my co-founder was recently told by one such VC he was meeting with to fire the engineering team if the product is ready and not hire any salespeople. Yes, you read that right, FIRE our engineering team. According to him, the founders should both do sales and save money on payroll. Well, I’d like for him to try that in our business (self-driving robots) or most other technology product businesses.
I pity the founder who listens to such folks and actually heeds their advice. You’re probably not yet fit to be a startup founder if you truly follow such crap advice. Run fast and run away from these morons. You need to have more conviction in your own plans for your business to let such fools deviate from you. My advice to founders, knowing which VC to listen to and which to ignore is hard. Not all of them are right. If you want to know what Chamath Palihapitiya or Vinod Khosla think of most VCs have a look at their interviews from Stanford.