Yes, No and a Definite Maybe
I have never started a piece with a joke, but I will make an exception here. Here goesâ€¦
Husband comes back home after a hard day at work and says to his wife, "Honey, I saw someone today who looked just like you". Wife smiles, turns to the husband and says, "Was she pretty?" Husband's smile slowly evaporates as the depth of the question sinks inâ€¦He responds, softly "check mate!" He knew that his wife had just stumped him and no matter if he answered Yes or No, he was in trouble.
Husbands, be forewarned. Women in general are much smarter than men, when it comes to matters of social interaction, especially involving the opposite sex. Well, what does that have to do with anything?
The slight dotted line connection of the joke above to the topic at hand has to do with the art of fund raising, and eventually getting an investor to say yes or no to investing. As every entrepreneur will attest, fundraising in and of itself is a full-time job, not to mention the fact that one is trying to run a company and hit the milestones that the investors are keen to monitor during the fundraising process itself.
Here is the rub. Investors (and I am guilty as well) are notoriously bad at saying "yes" but perhaps worse at saying "no". Instead, the response often is a "definite maybe".
The reason is fairly simple. Having more information about a company is usually better than having less information, to be able to make a more educated and calculated investment decision. That can be quite frustrating for entrepreneurs (and existing investors). And often, VCs won't turn from a "definite maybe" to a "yes" until there is a forcing function to make a decision â€“ i.e., a term sheet on the table from another investor and the fear of losing the deal. That's when the VC marathon turns into a sprint with multiple term sheets, shortened closure timelines and new found love-fest between prospective investors and entrepreneurs.
Entrepreneurs need to understand the choreography of fundraising, and being able to distinguish between real interest versus an educational and information gathering exercise on the part of the prospective investors.
The number one answer that startups are looking for is clearly a "Yes". The second best answer for a startup is actually a "no", as strange as it may sound. While getting a "no" may be disappointing, it is at least a definitive which allows the entrepreneur to strike a VC off the list of prospects and focus on those who might genuinely be interested.
Again, time is the most critical of commodities in one's life, especially for the entrepreneur who is trying to scale a business while catering to the whims and fancies of investors in a fundraising process.
So, what's the trick or rules of thumb to be able to identify genuine interest on the part of the investor versus simply an information gathering expedition?
Perhaps the number one indicator of interest is the speed with which the investor moves or responds, or at the very least justifies why things are not moving as quickly as expected. Radio silence is usually a clear indication of either lack of interest or the fact that the sponsor of the deal is not really able to make headway within the partnership.
The onus is really on the entrepreneur to manage the fundraising process. At the end of every meeting, one should get a sense directly from the audience how they felt the meeting went â€“ what was interesting and what requires more convincing; when you (as the entrepreneur) should expect to hear from them, and what the next steps and timeline are likely to be. Often entrepreneurs are worried about offending the investors by asking such questions. But remember, the more informed you are about the process with particular VCs, the better you will able to manage it, and keep the investors honest.
If the investors, on the other hand, over-promise and under-deliver (in terms of getting back to the entrepreneur in a timely manner), then that should also be a proxy of things to come if one were to take capital from that particular investor. Remember, diligence is really a two-way street. While investors clearly engage in due diligence on the company and management, so should entrepreneurs (and every interaction with that investor should ideally lead to increasing conviction that the investor is the right partner for the startup's journey).
The art of fundraising, recruiting and selling actually have something very significant in common â€“ KYC. You have to know the "customer" or the audience. You have to know who you are pitching to, what their hot buttons are and why they should pay attention to your startup versus six others that are likely to walk in the door that day. In case where you know you want a particular partner at a particular fund, you have to sell, sell, sell, the value proposition.
That is not dissimilar to a marquis customer or a key hire who may other alternatives. Investors love to see constant progress, whether it's in terms of product, sales, partnerships, PR, hires, or something else. Every time you have something positive and meaningful to broadcast to your ideal investor base, you should (even with whom you have had an initial meeting followed by radio silence from them).
It's amazing how entrepreneurs simply walk away from that opportunity thinking that since they had not heard back from the investor after the first meeting, the investor is not interested and they should simply give up. This may seem contrary to my previous comment that it's actually better to get a "no" than a maybe. But what's different is if you feel that a particular investor is ideal for your startup, but you are not able to get him/her excited. You have to keep dropping positive notes about the company's progress. You would be surprised how often that same radio silent investor wakes up for another closer look and turns positive.
Bottom line: Two fold: 1) The wife is always right. 2) watch episodes of "Silicon Valley" (seriously) to get insight into fundraising optics and psychology. Fundraising is a full-time job, but with the right strategy and data-driven persistence, you can turn a "definite maybe" or even a "no" into a "yes".
(Mohanjit Jolly is a partner at Draper Fisher Jurvetson.)