It’s been really fun keeping a blog again. I haven’t been writing
since I sold my company to Salesforce.com. One of the things I’ve
enjoyed the most is the conversation that it has created for me. More
people have left comments on the blog, sent me Facebook notes or
dropped me emails with either question, ideas for a post or challenging
something that I’ve written.
The best comment that I’ve received was from my friend Jason Spievak, co-founder and CEO of RingRevenue whose company I invested in early this year. His comment was so obvious when I read it that I wish I had thought of it myself:
that most capital meetings don’t lead to a next step, I’ve found one
great rule to be: never leave a meeting without getting a reference to
another capital source. VCs will usually be willing to give you a name
of someone else who might know your space better or otherwise be a
better potential investor fit rather than just send you out the door
with a “no thanks.”
So
true. Most VCs want to help even if they don’t think the deal is a
good fit for them. And we really don’t enjoy having to tell people
“no” all the time (which is maybe why so many VC’s say, “we love your
business – just come back and see us when you get some traction.” I
call it the “soft” no.)
By
the sheer law of numbers we have to say no to most of you. Consider
this: I see in person or take web conferences for about 10 business
minimum per week. Sometimes it is 15, sometimes it’s less. But that’s
about 400-500 deals / year in one stage or another. (That excludes the
many plans I receive that I deem not appropriate for a call or
meeting). We’re 4 partners and we also have 2 associates and an
analyst. As an office we see upwards of 1,000 deals / year. My math
might be off a little because it’s late and I had a killer Tanqueray 10
martini tonight but we see a lot of deals.
So
assuming that in a good year we fund 10 deals. That’s a 1% hit rate at
best. So I like to tell people that by definition we have to turn
down 99% of business that we see (a prominent entrepreneur who sold 2
businesses and then worked in VC for 8 years before quitting and going
back to entrepreneurship said that he wanted to get out of VC because
he got tired of turning people down all the time). So maybe that’s why
there’s so many memes about how to best turn down entrepreneurs (see Fred Wilson and Brad Feld).
It’s also why my philosophy is, “if most of the people that I see I’m
going to need to turn down I might as well be nice to them. If I can’t
fund them, at least I don’t want them to think I’m a dick also.”
So
for many of the people that I see I try my best to give referrals where
I can. If it’s not a good business I really do try hard to protect my
friends and colleagues from having to sit through a time-wasting
business. In that case the buck has to stop with me to tell the person
that I’m not convinced about the company. But for many businesses it
might be a matter of: stage too early, stage too late, wrong sector,
wrong geography, too competitive to an existing investment, we have
past “road kill” in a company that is similar in nature or frankly
maybe I’m just working hard on 2 other deals and I don’t have the time
or capacity to evaluate the deal. In any those cases I’m happy to give
an intro and I usually try my best to offer (as I did with an
interesting company I saw today called Ride Amigos that came in knowing they were too early stage for us but I feel confident will raise money from somebody else).
But
as with most of life, most people don’t ask. You don’t ask, you don’t
get. I always tell people who are in the job market that when you do
an informational interview your goal isn’t to ask the person you’re
meeting for a job, your goal is to ask for 3 more intros. In a way I
think VC pitches are the same. Take Jason’s advice. In a VC meeting
if you get the sense that the firm isn’t ready to move don’t be afraid
to say, “if you don’t see us as a perfect fit for your firm do you have
anybody else in town you think we’d be a better fit for?” And if your
rapport is good (and it won’t always be) ask if they’d mind intro’ing
you.
Thanks for the tip, Jason.
(Cross-posted @ Both Sides of the Table)
Mark,
First of all, let me say great blog! Really enjoy your posts and look forward to future ones.
I would put a different spin on Jason’s suggestion. In general, it is very difficult for a VC to introduce a company to another VC because the first question usually is “why aren’t you investing?” Stage can be a good answer, but it’s not always believable (i.e., most firms opportunistically do early or late stage investments) and I’m skeptical that these intros lead to anything. But introductions to a VC’s portfolio companies is usually a much easier ask, even if the VC isn’t a good fit from an investment partner perspective.
just my quick two cents.
st
I understand the comment and I know some people feel that way. It hasn’t been my experience. When I get calls from other VCs who I like and respect I always ask why they’re not investing but I know sometimes geography, topic, stage or whatever precludes people. I often get called by seed stage funds saying, “valuation too high for me, maybe OK for your fund.”
When I refer a deal it is often, “I really liked the entrepreneurs but this isn’t going to be a big enough business for us. For your $20 million this might be the perfect fit”. Smaller funds like companies that require less cash and may exit at smaller valuations than we would typically look for.
Also, I often refer deals and say, “we may end up looking at this company but if we do we’d want a co-investor. right now we’re waiting 3 months to see how their user adoption goes but we like them.” There are many ways to make an intro work.
I also intro NorCal people to my VC friends there. If it is too early stage and it SF it might make more sense for somebody else to seed.
Thanks again for your thoughts. They are valid and something entrepreneurs should be aware of.