“So how do you think your meeting went?”
“Oh, it went really well!”
This is a typical conversation I’ll have with a portfolio founder about his/her meeting with another seed venture capitalist (VC).
One thing I’ve noticed in the short time that I’ve been doing this job is that conversations with VCs that feel like they’re going well typically are not. What happens next is the VC lobs the founder an email saying something like, “We’ve decided this is out of our wheelhouse. Thanks for meeting.” And that’s it. The founder is confused and then frustrated.
What’s going on? Why is it so hard to discern whether a VC meeting is going well? A few thoughts…
1. VCs will ask you hard questions if he/she is really interested in your business
A VC’s job is to turn over every stone in your business. Because he/she is investing other people’s money, this is really, really important. This means that, by definition, there will be lots of difficult questions if the VC is doing his/her job. The flip-side is also true. If I’ve already decided to pass, I won’t even go down the path of asking difficult questions (or even ask a lot of questions) because there are enough red flags to cut the conversation short.
In fact, the easiest conversations with entrepreneurs are with the ones I’ve already decided to pass on.
I do understand this also leads to frustration. After a VC passes, entrepreneurs are often left thinking that he/she didn’t get a fair shake down with a lot of questions. “She didn’t even ask me about the team or ask to see the product!” is what I’ll often hear.
I get the frustration.
This is where that comes from. Commonly, VCs will cut a conversation short for a few reasons:
- Your company is too early
- Your market seems too small
- You or your co-founder do not seem sharp or tenacious
- The VC doesn’t like you or your co-founder
Stage
Your stage is probably the biggest reason VCs will pass quickly. A lot of VCs have a sweet spot, in terms of traction stage, that they are investing in. It’s part of their thesis or model. If you don’t fit that right now, it’s not worth wasting time – including your own – to continue the conversation at this time. However, you should know that a pass now is not a pass forever; you should definitely go back when you have more progress.
A lot of VCs will try to tell you that they don’t have a sweet spot stage because they don’t want to miss any deals. They would much rather see you too early than too late. Truth be told, if you look at anyone’s portfolio, there are always tons of exceptions. A VC who claims to look for a fair bit of traction will often have pre-launch companies in his/her portfolio. That being said, a VC can quickly assess per your space and your idea whether it’s worth considering right now, and this is why conversations may end quickly.
Market size
If a VC is passing because your market size is seemingly too small, you can often change his/her mind about the market.
Tenacity
Early stage investors make a lot of decisions based on the founder of a startup. This works to some people’s benefit and not to other’s. If a VC sizes you up and has decided that you wouldn’t be a strong CEO, then that’s a pass for now as well. How VCs determine who are “awesome founders” is a much longer discussion – there are certainly inherent, unconscious biases that we need to work on in this industry – but the bottom line is that you, as a founder, have to roll with the punches even if life is unfair. The best way to prove you are an awesome founder is by making progress on your business and continuing to knock on those same investors’ doors to show your progress. That is what truly makes for an awesome founder – someone who can get stuff done.
Bad impressions
Lastly, a VC would cut a meeting short if he/she doesn’t like the founder. To be honest, if you are meeting an investor for the first time, you would think it would be very difficult to leave a bad impression on just one meeting. To my surprise, there are actually a lot of entrepreneurs who do not pass this bar. I will automatically pass if you:
- Lie, cheat, or do something unethical
- Treat my team (or your team!) rudely, meanly, or in an entitled way
This may sound obvious, but if we are going to start a relationship, there needs to be strong trust; I need to know that you are a decent human being. How you treat other people on my team is a proxy for how you’ll treat your own team (read: morale issues and drama), and of course, unethical people cannot be trusted.
Not only will I automatically pass today for these reasons, but I will also pass every single time for your subsequent businesses.
2. Conversations with angels can be easier
All of this said, conversations with angel investors can be very different. Angel investors invest their own money and can decide to invest for whatever reason. They can invest simply because they like your logo. They may not turn over every stone. So, you’ll see much more variation in your conversations with angel investors depending on the individual angel.
In closing, part of the problem with all of this is that you often won’t know why a VC is passing. You should definitely ask, and if the issue is around stage of your company or market, investors are usually pretty open about telling you that. If they are not able to give you more specific feedback, by process of elimination, there is likely something negative that he/she thinks about you or your co-founder.