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Are Venture Capitalists incompetent or just inconsiderate?

Today’s guest poster is Frank Ronchetti, CFO of a local startup in Boulder. His “ask the vc” question became more of an observation and I thought that I would post in its entirety and then comment below. Frank, you have the floor.

Are VCs incompetent or just inconsiderate? Not all venture capitalists mind you, just the ones who solicit your proposal, read your executive summary, or even meet with you, and then you never hear another word from them. What’s up with that?

There is a subset of the VC community that will just go silent at some point and you never hear from them again. I have raised venture funding for a few companies, and I would estimate this number at around 10-20% of all the funds I have approached. The Berkshire Hathaway annual report’s Acquisition Criteria section always contains the quote, "When the phone don’t ring, you’ll know it’s me." But that only applies where someone looking for funding doesn’t do their homework and sends in a proposal that doesn’t meet their criteria.

The problem in the VC community is broader than that. I have seen potential investors go silent:

  • After researching their investment criteria and seeing that we may be a good fit.
  • After getting an introduction to the fund from a respected referral source.
  • After communicating with a partner who said, “This looks interesting. I will look at your executive summary and get back to you.”
  • And even after having a conference call or face-to-face meeting to go through our business plan in detail.

If silence always meant rejection, then this wouldn’t be such a problem, other than the fact that I waste my time making multiple calls or sending several e-mails to follow up. But silence doesn’t always mean rejection. I have spent literally weeks trying to get a response from a VC, only to hear, “Thank you for being so persistent. We remain interested, but we’ve been swamped / we just closed our new fund / an investment committee member has been on vacation / etc.” The process has then continued. So you can’t just give up.

My strategy when I get the silent treatment has been to leave a series of three to five messages (depending on the quality of the introduction or level of previous engagement) with the last one politely saying, “This is the last time I’m going to call.” But boy, what a waste of time this is. Entrepreneurs bust their butts and spend dozens of hours writing business plans, arranging investor meetings, and preparing and making presentations. Venture capital fund managers owe them the courtesy and respect of making a two-minute phone call to say, “No thank you.”

Thanks Frank, that is indeed frustrating. So what’s the deal? Here is my take:

I’ve always taken the approach (as does my co-author Brad) that you try to keep communication as efficient and responsive as possible. We regularly say that we will return any email that we get, but also caution that phone calls are much harder to return. I think there are two takeaways from this: first, whomever you are dealing with, try to find out their preferred mode of communication and two; I don’t necessarily think that we represent the norm when it comes to responsiveness.

We also try to say “no” as quickly as possible to deals that we are evaluating in our pipeline that aren’t going to be funded by us. There is no use keeping the entrepreneur on the hook if you aren’t going to fund a deal and we try to come to the “no” decision as quickly as possible.

I agree, Frank, there is a lot of bad communication “mojo” in the venture world. In fact, I see it too. I’ve seen countless times where VCs have been unresponsive to entrepreneurs, other VCs, or even their own portfolio companies.

In fairness, keep in mind that most good VCs are reviewing a massive amount of emails, business plans and proposals, so there are times when one can get buried. Take for instance the situation where one of my companies is in the middle of a sale process, while I’m in fundraising mode and moving into a new office. (That actually happened to me last fall). I’m clearly going to get slower in responses, but this normally affects timing by days, not weeks, as you mentioned above.

Okay, I haven’t answered your question: Are VCs incompetent or just inconsiderate? I think it’s more of the latter than the former, but ineffective communication styles, in my opinion, will eventually affect a VCs returns as reputations do matter in this business.

March 20th, 2008 by     Categories: Uncategorized    
  • Nivi

    “Don't bother contacting an investor if you can't be his emergency today. He's already in the middle of one. Or more.” – http://twitter.com/venturehacks/statuses/77465037

  • Eddie K

    Having a sales background will help avoid this frustration…call on some brand/product mangers (or even better, call an AE at an advertising agency) for a month or two to sell some advertising and you will see it is no different…I do not think it is just VCs who act this way…anyway…just a post from a “sales guy” who is now in the process of raising some serious quid for a huge and solid idea…don't give up and remember that the others you are fighting attention span for will likely give up before you do…keep calling until they tell you to stop…oh yeah, and when you make your chang…be sure to call the guy back who wants you as an angel investor…

  • http://www.skmurphy.com/ Sean Murphy

    This doesn't really sound that different from an enterprise sales process.

    I have the impression that a lot of entrepreneurs who are complaining about inconsiderate VC's haven't had much experience trying to close business. Not every sales call ends in an order and 7 or 8 calls/e-mails even after a “warm meeting” wouldn't be out of the question to re-ignite the process if it stalls. It would seem to me a better strategy would be to work a number of prospective investors in parallel since the odds are so long for closing any single one.

    For software startups the best strategy may be to close customers for revenue instead. It validates your business model and in many cases customers seem to be more “rational” than VC's.

  • Todd

    Frank is right on. There's a lack of respect and common courtesy in the VC community that is unlike anything else out there. If the answer is “No”, just say so and be done with it. A Harvard or Stanford MBA doesn't give you a license to be a jerk.

  • Jack

    I have to disagree with you, Todd. It's not unlike anything else out there. In fact, it's more like everything else out there than I am comfortable with.

    I'll give you a very quick story. A few years ago my brother was overdosed on morphine at a hospital. He spent about 5 years rehabbing himself from catatonic to fully functioning (mentally. Still has physical problems.) About 2 years into that ordeal, when he seemed to me pretty severely mentally damaged, he was given a standard IQ test. He scored in the 55th percentile. That wasn't the 55th percentile for people recovering from debilitating injury, that was 55th percentile – period.

    The fact is the average human being has a harder time with life than many people appreciate. The fact is, in every industry, the majority of the people working in it are average people. When average people are running the show, you're going to have to go without the kind of responsiveness that only a really on-top-of-things kind of person can accomplish.

    Lower your expectations for courtesy and competency – far lower than you expect of yourself – and you'll be on target for what you're likely to receive. VCs aren't worse, they're just simply as bad.