I’m a cynic by nature. And I think it pays to be so. I sometimes wish I were an unbridled, happy-go-lucky, assume-the-best-in-everybody sort of chappy. Sadly, I’m not.
You know the old Groucho Marx saying, “I would never join a club that would accept me as a member.” I always loved that line. So whenever I get a deal sent my way that is from out of town and seems amazing but seems almost too good to be true, my first thought is always, “Why am I so lucky?”
It’s a standard line I use at our partners meetings.
It’s not that I lack confidence. I’m usually accused of the opposite. It’s just that I never want to be The Sucker at the Table.
I got a call a few years ago from a well-known investor up North. It was the first time he had ever called me. Their firm is one of those that you think of when you think of Silicon Valley. I didn’t remember getting the calls on all of his super big, high profile deals.
Why am I so lucky?
I got three calls from another big name, big check VC. I looked at all three deals. It’s super hard not to want to spend more time with these companies. After all, you’d get to work with HIM.
Still. I’m not sucker. The only thing worse than not being in a clubby deal where you might get to build a close personal relationship with somebody you deeply respect is being the sucker of that person you deeply respect.
I reviewed a deal for a friend of mine tonight. He’s an incredibly smart investor and somebody that I actually consider to be a mentor to myself. He’s wise, thoughtful and has made money across so many different industries it’s humbling. He wanted to know what I thought of his technology deal. For all the things he’s likely known for, he probably hasn’t yet built a strong relationship as an early stage venture investor (he invests often in later-stage deals where he is very respected).
My email back to him was a version of
“This is a very accomplished executive in his industry across more than 20 years. He has a team of 4 other such executives. Don’t you think if they were so hot and so senior that everybody in town would know them? Don’t you find it a little bit odd that he’s reaching out to a relative stranger through LinkedIn asking for $500,000?
Why are you so lucky to get the call and discover this deal?
Dealflow doesn’t just come without hard work. So I recommended that if he wanted to do more early-stage investing he should establish a direct relationship with many other VCs who might do deals alongside him and he could benefit from their existing dealflow and they would benefit from the breadth of his skills.
I outlined here my views on “proprietary dealflow.”
Semil Shah wrote in this absolutely spot on post
“… for any good investment, from Series A on, there is at least one firm to compete with. Competition is fierce.
VCs will spend over a year networking just to position around one founder or one deal, and if they lose it, it’s gone.”
That’s precisely it. I work on relationships for years and wait patiently for the opportunity to potentially work together. Sometimes it comes. But it doesn’t come easy. Not from a random phone call. Not from LinkedIn.
I read the pitch they had sent my friend. But barely. It almost didn’t matter. It didn’t pass the smell test.
Always assume the worst. Always question the motives of those sending you dealfow – regardless of how nice they are or well meaning. I’m not saying all dealflow is bad or all referrers are hucksters. I’m just saying that you need to look at it through the lens of the motive. I always ask when somebody sends me a deal, for example, are you already a shareholder in the company?
Get out your inner Larry David scrutiny.
I got an email recently from a VC who had invested in a company a small amount in a seed round. He was calling me about the A round. His fund is > $500 million and I guaranfuckingtee he ain’t calling me if that company is crushing it. I don’t blame him – that’s his job. But why am I so lucky that you’ll let me in?
Of course I ask more politely that than. But I always ask. Deadpan. Serious. “I don’t understand. You have a big fund. I’ve seen you write a $10 million check before. Why would you be looking for outside investors at this point? And why would it make sense to bring me on board?”
Then I listen. Is it plausible? Are they authentic?
I offered to fund the seed round of a guy I’ve known for years. He opted for two big VC funds up North who split $1.5 million. They have some of the best names in the Valley. Fair enough. Can’t win every deal. He called me 15 months later excited to show me his metrics and wanted to talk about his A round.
Meh. The signal was way too loud. I’m no fool.
My response? “I’d love to work with you one day. Please call me early when you start your next company. And I hope it’s right after this one is a huge success.”
It wasn’t. He never raised follow on money. Not from either of his two famous VCs. Nor from me.
Never be the sucker.