Observations on how good VC’s work – By Deepak Srinath
July 18, 2011 1 Comment
Two recent incidents prompted me to write this. The first was a VC meeting that left me super impressed- the fund partner had read through all the material we had sent him, analyzed data, made reference calls and asked the most perceptive and intelligent questions. What’s more, the meeting started exactly on time and even though he rejected the deal we were thankful for the insightful feedback. A few days later I was in another pitch to a couple of partners from a fund and one of them fell asleep- I’m not talking about a drowsy eyed yawn, this was chin on neck full on oblivion!! Maybe our pitch was boring, but that’s still no excuse.
The VC pitch phase can be a very jittery time for most entrepreneurs. VC’s become mythical gods who have the power to decide their destiny. As an i-banker I’ve had the opportunity to participate in pitches made to a lot of VC’s over the years. Every VC (the individual and the fund) has their own unique style of handling the pitching process and I’ve seen good, bad and the ugly. Here are a few reasons why I respect the VC’s I do-
1. They always value the entrepreneurs time – Anyone who’s gone through a pitching process is familiar with the ‘we’re running late on our previous meeting’ routine, especially when a VC from out of town has lined up 10 pitches in one day. A line that I’ve heard often enough is ”what can be more important to the entrepreneur than pitching to us”. Good VC’s know how to plan their meetings and respect an entrepreneurs time.
2. They do meetings only if they’re really interested – Sometimes VC’s do meetings even when they know they’re not going to invest, maybe to gather information about a sector. It’s easy to see through when there is no real intent to invest and entrepreneurs end up feeling very resentful.
3. Stay alert during meetings - It’s hard to sit through pitch after pitch and be excited about each one. Good VC’s have the ability to stay tuned in to every pitch they hear.
4.They do their prep – It’s always a great interaction when the VC understands the domain and has gone through the IM or done some background research. Their questions are so much more relevant and entrepreneurs appreciate it.
5. They respond to emails – Entrepreneurs hate it when they pitch to a VC and never hear back from them. Not responding to emails or calls after a meeting is inexcusable. No matter how busy you are, a one line email with a “sorry not interested, or I need a couple of weeks to think about it” helps the entrepreneur move forward.
6. They give candid feedback – Entrepreneurs always appreciate candid, constructive feedback and good VC’s know the art of doing this. Sometimes VC’s reject deals just based on gut feel or think that honest feedback will be too discouraging to the entrepreneur. Whatever it is, getting the right feedback is important for the entrepreneurs’ growth.
7. They engage, don’t dominate – Perhaps the most important skill of a good VC is the ability to engage and build an equitable, trusting relationship with the entrepreneur. This comes to the fore especially during term sheet negotiations. Too often VC’s hold a gun to the entrepreneur’s head and put them in a take it or leave it situation (and vice versa one may argue). If the rationale behind asking for certain terms is explained to the entrepreneur, the entrepreneur is more likely to agree to them (assuming the terms are not blatantly unreasonable).
I suspect VC’s who practice these traits will end being more successful investors, as the best entrepreneurs will prefer to partner with them.