Dealing with Venture Capitalists18
Don't forget that venture capitalists see lots of busi¬ness plans and proposals, sometimes 100 or more a month. Typically, they invest in only one to three ol these. The following suggestions may he helpful in working with them.
If possible, obtain a personal introduction from someone that is well-known to the investors (a direc¬tor or founder ol one ol their portfolio companies, a limited partner in their fund: a lawyer or accountant who has worked with them on deals) and who knows you well. After identifying the best targets, you should create a market for your company by marketing it. Have several prospects. Be vague about who else you are talking with. You can end up with a rejection from everyone if the other firms know who was the first firm that turned vou down. It is also much harder to get a yes than to get a no. You can waste an enormous amount of time before getting there.
When pushed bv the investors to indicate what other firms/angels you are talking to, simply put it this way: "All our advisors believe that information is highly confidential to the company, and our team agrees. We are talking to other high quality investors like yourselves. The ones with the right chemistry who can make the biggest difference in our company and are prepared to invest first will be our partner. Once we have a term sheet and deal on the table, if you also want co-investors we are more than happy to share these other investors' names/' Failing to take such a tack usually puts you in an adverse negotiating position.
Most investors who have serious interest will have some clear ifleas about how to improve your strategy, product line, positioning, and a variety of other areas. This is one ol the ways thevcan add value—if they are
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right. Consequently, you need to be prepared for them to take apart your business plan and to put it back together. They are likely to have their own for¬mat and their own financial models. Working with them on this is a good way to get to know them.
Never lie. As one entrepreneur put it, "You have to market the truth, but do not lie." Do not stop selling until the money is in the bank. Let the facts speak for themselves. Be able to deliver on the claims, state¬ments, and promises you make or imply in your busi¬ness plan and presentations. Tom Huseby adds some final wisdom: "It's much harder than you ever thought it could be. You can last much longer than you ever thought you could. They have to do this for the rest of their lives!" Finally, never say no to an offer price. There is an old saying that your first offer may be your best offer.