Lateral Capital Management, LLC

The VC Turndown Translator

The purpose of this guide is not to disparage entrepreneurs who are inexperienced with VC interactions. Nor is it to convince you not to seek follow-on investments from Venture Capital firms. They are an essential part of the innovation economy and for the right Early Stage company, perfect follow-on investors. Rather, The VC Turndown Translator is a coaching tool based on several lifetimes of experience with how VCs really behave.

When entrepreneurs are raising follow-on rounds, Angel investors often ask them “Have any VCs expressed interest in this round?” Often the responses reveal the CEO’s naiveté regarding VC-speak! CEOs repeat things said to them by VCs – as if they were actually true! Many Early Stage investors have heard all of this before and interpret “VC-speak” differently.

What the CEO Reports

What Early Stage Investors Interpret

“Several VCs have called us out of the blue.”

No VC is interested. Outbound calls by VCs are typically placed by Associates at the bottom of the firm. Intro calls are rarely made by any VC who will have a vote to invest in your venture. Besides, the VC firm may just be gathering market information for their portfolio companies. Be very circumspect about what you reveal to strangers over the phone.

“They are definitely interested, and want to be kept apprised of our progress.”

No VC is interested. Is “they” a Partner or an Associate – or even a summer intern? They want to stay in touch and track your progress because it costs them nothing, and you might just reveal some free, helpful market intelligence. Remember that VC will rarely say no. By keeping the door open for future dialogue, just in case their deal landscape becomes arid or the company’s performance becomes enticing, they keep their options open – for free.

“Our round is too small for them.”

No VC is interested. Many VC firms place multiple seed stage bets. Your round is definitely not too small for every VC out there. You just have failed to convince them that their potential return is big enough to justify taking a deeper dive into your opportunity.

“They really love what we’re doing, but we’re too early for them.”

No VC is interested. VCs seek both a great business and a powerful leader. They make size and stage exceptions all the time when something grabs them, which you haven’t. Would they invest in Zuckerberg’s new idea without even seeing some bar napkin scribblings? Of course. If he appeared in the starting gate riding a burrow, they would cover him with a mountain of their money. You may be too early, but this does not mean that your progress cannot get their sincere attention later.

“They told us to come back the instant we hit XXX milestones.”

No VC is interested. This is just a wiser way for them to ensure you will remember to come back to them, plus be more diligent in keeping them abreast of your progress in the interim.

“They said to come back when we have a lead investor.”

No VC is interested. Sure, some firms have a policy against leading deals, but why would you ever talk to them? If they will not provide introductions to firms who do lead deals, they are signaling they doubt you will ever find one.

“Our contact (a non-partner) is going to mention our deal at their next partners meeting.”

No VC is interested. Wake me up when you have two meetings with the same Partner.

If this summary conveys that the world of Venture Capital can be difficult, even treacherous, we have done our job. It’s not that VCs are all bad or all wrong. But like anything else, it says to keep your eyes open wide.

Source: Longtime Early Stage investor, John O. Huston.