Something’s been bothering me lately.
I’ve been hearing about the following situation from a bunch of people: a set of entrepreneurs really wants to get funding from a specific VC. The entrepreneurs meet with the VC a number of times, yet they continue to get nowhere in terms of funding progress. And it’s very frustrating- it’s consuming a significant amount of time from the entrepreneurs that they simply can’t afford to waste. I just want someone to tell them to bail on that VC and look for another one. I can’t understand why they keep going after this specific VC. Don’t they know that they have an amazing product? There are so many other VCs out there that would be willing to fund them.
Well, if only it were that easy. No one wants to give up on their dream VC, especially when they lead you on enough to the point where it seems as if they’re truly interested. What happens is – and here’s the problem – on meeting number one, when the VC is asked whether or not they are interested in investing, they respond “maybe.” And that is the single worst answer a VC can give to an entrepreneur.
See, when an entrepreneur meets with a VC to get funding, there are only three possible responses to their pitch- yes, no or maybe. If they get a “yes” right away, then they’re very happy. They’ll obviously have to continue to put in effort to ensure that the “yes” remains a yes, but they can go on with peace of mind knowing that something good will eventually come out of their meetings with the VC.
A “no” is not desired, but it’s still good. The VC is doing the entrepreneurs a favor- he is telling them, “Look, I don’t want to invest in you. You’re not for me. Move on and find somebody else.” It’s a disappointment for an entrepreneur to hear that, but it still gives them closure that they shouldn’t be wasting their valuable time chasing after a VC that they’re not going to get.
But if an entrepreneur gets a “maybe,” then they’re in trouble. The entrepreneur is now unsure as to whether or not the VC is truly interested. The VC wants to keep meeting with the entrepreneur, continuing to lead him on, but the entrepreneur can’t tell if it’s heading in the right direction or continuing to go nowhere. And because the entrepreneur is unsure, he will continue to put in effort to try to convince the VC that his product is worth investing in. The entrepreneur will put in tons of effort to show the VC their best stuff and give them their best info. Yet at the end of the day, the VC may have zero interest in the entrepreneur at all and is just using them for information and amusement.
It’s funny because if another VC jumps in and offers to invest in the entrepreneur, then all of a sudden the game changes. Demand increases, which in turn creates a higher valuation for the product. Now the original VC wants to invest. And you know what- that original VC may be screwed. The company now has more options – perhaps even better ones – that they have to pay attention to. And you know where that extra time commitment is coming from? The “dream” VC’s time. The entrepreneur has likely already learned not to waste his time with that original VC because their meetings are just creating more excitement for a happy ending that is unlikely to occur.
For all those VCs out there who are part of the “maybe” crew- do entrepreneurs a favor and just tell them “no.” It won’t break their hearts, and they will in fact respect you even more. They’ll be satisfied that you have told them the truth up front and that they can now move on. They liked you – they really did – but it simply was not meant to be. It hurts a little, but they’re grown men- they’re confident that they’re a gem and that they’ll be able to raise funding elsewhere.
But if you’re a VC that’s truly torn between investing or not investing, make up your mind. If you really like the entrepreneurs, why not take the risk with them? You have the potential to build something amazing. Commit to them before they commit to somebody else.