Top 9 Lies of Venture Capitalists

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February 2009
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Venture capitalists are simple people. But we’re not necessarily forthcoming, so if you think it’s hard to get a “yes” out of a venture capitalist, try getting a conclusive “no.” The game is to string along entrepreneurs in case something miraculous happens to make them look better.

Alas, entrepreneurs are also simple people; if they don’t hear a conclusive “no,” they assume the answer is yes. This communication breakdown causes much frustration for entrepreneurs.

To foster greater understanding, here are the top nine lies of venture capitalists.

  1. “I liked your company, but my partners didn’t.” The sponsor is trying to get you to believe he’s the good guy, the smart guy, that he’s the one who gets it. But this is a cop-out. A true believer would get it done.
  2. “If you get a lead, we’ll follow.” In other words, once you don’t need the money, the venture capitalist would be happy to give you more. What entrepreneurs want to hear is, “If you can’t get a lead, we will.” That’s a believer.
  3. “Show us some traction, and we’ll invest.” This lie translates to: “I don’t believe your story. However, I don’t want to tell you ‘no’ because you may sign a huge customer.”
  4. “We love to co-invest with other venture capitalists.” Like the sun rising and Canadians playing hockey, you can depend on the greed of venture capitalists. Greed translates to: “If this is a good deal, we want it all.”
  5. “We’re investing in your team.” Entrepreneurs hear, “Why would we fire you? We invested because of you.” The venture capitalist is actually saying, “We’re investing in your team as long as things go well, but if they go badly, we’ll fire you.”
  6. “I have lots of bandwidth to dedicate to your company.” Maybe the venture capitalist is talking about his T3 line, not his personal calendar. Counting board meetings, you should assume a venture capitalist will spend five to 10 hours a month on your company. That’s it. So make board meetings short.
  7. “This is a vanilla term sheet.” There’s no such thing. Do you think corporate finance attorneys are paid $400 an hour to push out vanilla term sheets? Term sheets are more like Rocky Road. That’s why you need a $400-an-hour attorney.
  8. “We can open up doors for you at our client companies.” This is a double whammy. First, a venture capitalist can’t always open up doors at client companies. Frankly, the client company might hate him. Second, even if he can open the door, you can’t seriously expect the company to commit to your product.
  9. “We like early-stage investing.” Venture capitalists fantasize about putting $1 million into a $2 million pre-money company and end up owning 33 percent of the next Google. Why do we all know about Google’s amazing ROI? The same reason we all know about Michael Jordan: Googles and Michael Jordans hardly ever happen. Venture capitalists want to invest in proven teams with proven technology in a proven market. We are remarkably risk averse, considering it’s not even our money.

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