Venturing Startup Nation

Raising capital is a full time job. Except for a few lucky startups that cruise through the process, most entrepreneurs find themselves spending too much time fundraising. Instead of focusing on the important aspects of your company like building a great product or winning another customer, you are forced to wander around VC land and courageously defend your business plan as investors tear it apart with questions. Not only that, but too often the investors you meet just don’t treat you with the basic respect you deserve. Most of the time it is not that investors are intentionally rude, but it is just too easy to “forget” basic courtesy when you sit on that side of the table.

A typical VC meets on average 1-2 startups a day, which accumulates to 20-40 startups a month or 200-400 startups a year (assuming some time off and seasonality). An active investor will invest in about 3-4 new startups a year which accounts for 0.75%-2% of the startups he or she met. If you factor in the fact that investors don’t always win the deals they want, you are still left with ~95% of the meetings ending with a pass. When you deal with these kind of numbers, you can easily become very dismissive of the other 95% and treat them as “noise”.

A decent investor understands that for entrepreneurs meeting a VC is often more memorable since the number of VCs they meet is much smaller than the number of startups we meet. Moreover, it is these 95% that mostly spread the word about the investor and determine their reputation.

So here are a few things you should expect to get from every investor you meet:

• Scheduling: Setting up meetings shouldn’t be a huge pain. While many investors are busy with deal flow and supporting their portfolio companies, it shouldn’t take more than a few weeks to get in front of someone. In addition, the investor should not reschedule the meeting unless something serious comes up, and should be there on time. Below are the results of a survey we conducted at Bessemer with a random pool of startups we met this year:

• Engagement level: The investor should be engaged in the meeting and thoughtful. He should ask smart questions that make you think. Hopefully he will provide relevant and interesting insights that can help you with your startup. This can include things like best practices, market trends, things to watch out for, helpful anecdotes etc. When you meet an investor you should leave the meeting thinking that you have learned something new and that it was a good use of your time, even if he decided to pass. Here is what companies we met and decided to pass on said about us:

• Passing on an investment: As an investor you have almost nothing to gain by officially passing on an investment unless you are forced to do so. When you don’t pass, you leave the door open to change your mind at any time before the round closes. This is why some (bad) investors take a long time to respond to emails, give vague responses or just drag the diligence forever. As an entrepreneur, you deserve to know your real options and understand whether an investor is likely to invest or is just wasting your time. While it is always difficult to tell someone you are not going to invest in their dream company, investors should have the courage to do so in the most straightforward way. A good habit I have adopted is to pass on investment opportunities already during the meeting if I know we are very unlikely to invest. Although it is often more awkward than sending an email post meeting, it helps prevent cases where we forget to get back and also helps the entrepreneur immediately know where we stand. Moreover, it is surprising to see how often saying we are not going to invest in the middle of a meeting helps steer the conversation from a one way “sell” mode to a much more productive session where we have a real dialog that allows us to help the company. As you can see below, while we are OK on this aspect, we still have some room for improvement as sometimes things fall through the cracks:

So if you sometimes feel you are not getting the respect you deserve please remember that this is a two way street. In the same way you are getting evaluated by investors, you should be using this time to evaluate whether this is the investor you want as your partner. In the long run, bad investors will not thrive.