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Morgan: Why Entrepreneurs Should Never Meet VC’s Unless They’re Formally Pitching

Today’s VC Post of the Day is from Allen Morgan (Idealab, Mayfield) and is titled Why Entrepreneurs Should Never Meet VC’s Unless They’re Formally Pitching. In it, Allen explains – well – why entrepreneurs should never meet VCs unless they’re formally pitching. It stands out in direct contrast to a recent post from Mark Suster titled Invest in Lines, not Dots in which Mark strongly recommends the opposite – meet with your potential investors regularly in advance of actually fundraising.

So, what should an entrepreneur do? Both Allen and Mark justify their positions well, although in the comments Allen says his advice is entrepreneur centric and Mark’s is VC centric. Allen also suggests that the benefits of meeting with a VC pre-fundraising may outweigh the costs:

“For a great VC like Mark, the costs may (just may) outweigh the benefits. If you have a hot deal, however, Mark will behave like any other smart, rational investor and react only to competitive pressures.”

I’m going to strongly agree with Mark and respectfully disagree with Allen. While I think his comments apply to some VCs, I don’t think they apply to all VCs. Early on in Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist we encourage entrepreneurs not to think of VCs as single type as there are many different styles and behaviors. So, if Allen’s title had been “Why Entrepreneurs Should Never Meet Some VCs …” I’d strongly agree with him.

Both Allen’s post and Mark’s post are well worth reading carefully if you are an entrepreneur considering raising money and trying to decide whether to spend any time with VCs in advance of starting a formal fundraising process. But recognize that some assertions don’t apply. For example, Allen states:

“And, finally, no self-respecting VC will make a pre-emptive offer (even to get a deal early) if he thinks that he’s got the inside track on a deal. … No entrepreneur ever got a VC to substantially increase his initial offer merely by presenting more data (even great, persuasive data), showing why the startup should be valued higher. “

Well, either at Foundry Group we aren’t self-respecting VCs or Allen is wrong, as we make pre-emptive offers all the time and will negotiate on price regardless of external competition. And many of the companies we invest in are ones that we’ve had a relationship with for a long time. We also find ourselves extremely bored by formal pitches as our first or early interaction. If an entrepreneur shows up, says “hi, I have a hot deal with a bunch of folks bidding on it, do you want to see my formal pitch” we often say “no thanks, we aren’t the right guys for you.”

The bottom line – that both Allen and Mark put forth – is know your the motivations of the potential VC you are talking to well. And, if you believe, like we do that there are many different types of VCs, adapt your behavior accordingly.

August 1st, 2011 by     Categories: VC Post of the Day     Tags: ,
  • http://blog.3bigheads.com John Stack

    Two great things stand out in your vc-entrepreneur” interaction style:  1. There are no rules (you’ll meet and pre-empt as you see fit, ok with feeler convos.)  2. You are about relationships.  

    • http://www.feld.com bfeld

      Thanks John. We think it’s super important “not to have rules” – I’ve always thought that “rules” were incredibly self-limiting for VCs.

    • http://www.feld.com bfeld

      Thanks John. We think it’s super important “not to have rules” – I’ve always thought that “rules” were incredibly self-limiting for VCs.

  • http://www.charliecrystle.com Charlie Crystle

    I thought Allen’s post was wrong as soon as I saw it, and dangerously so for startups. I take time to get to know investors, because when it comes down to it there’s plenty of money available. Some capital is just capital, but most of it is attached to real people. 

    Relationships matter. But taking venture is agreeing to a long-term relationship which will absolutely have downs as well as ups, and a negative relationship can have devastating effects on the startup (and founders) down the road. 

    Also, some of my favorite feature suggestions have come from VCs. Making the rounds to get advice is in fact fruitful. 

  • Pete Griffiths

    Glad I found this post.  I had read Mark’s piece – which made good sense to me – before I read Allen’s and the stark contrast between the two positions was a little unsettling. Whilst Allen made some good points the decider for me is  much like Mark’s point.  He invests in lines, not in dots, and IMHO it is the same for entrepreneurs.  We are researching a relationship that lasts ‘until death’ :) and how can you assess personal chemistry in one meeting?  More especially, in the context of a formal pitch meeting?  VCs may add more or less value over and above money, but the way they conduct themselves, their style, temperament, business philosophy and values are all incredibly important to an entrepreneur, just as the entrepreneur’s such qualities are to the VC, and I think it takes time to get a sense of these things.  Everyone can be on their best behavior for one meeting.  One virtue of doing business in Europe is that people drink and after a few glasses one often gets a different perspective on someone – in vino veritas.  :)

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