What do you think a VC’s number one job is?
Most people will say “write checks” or “make investments” or “work with founders.” More sophisticated folks might say something like “manage money for their own investors” or, simply, “return LP dollars.” These are all reasonable guesses and absolutely things that VCs do (or try to do).
But the number one job of a VC is to say “no”.
A VC is going to get somewhere between 250 and 500 requests for capital for every check they write, and that number goes up even further for Pre-Seed investors. For investors, saying “no” is like breathing.
Please don’t take this as an indictment of VCs. Most early-stage investors are former founders themselves, and they’d love to write far more checks than they can. They’re rooting for startups CEOs and would love to see more of them able to pursue their dreams.
But look at how poorly things go when they do. Low-bar, COVID-era investment didn’t create a tsunami of successful new companies. A lot of recently funded businesses have lost an insane amount of money because investors DIDN’T say “no.”
Because most companies are not venture scale businesses. Unfortunately, it’s expensive for non-developer founders to launch a software company, and they often face an existential need for capital before they even get started. As a result, those founders try to cast a business that will top out at (a very profitable) $10M ARR as the next Uber or Stripe.
So VCs are in the unenviable position of saying “no” All. Day. Long.
Why do I bring this up?
Simply put, founders and VCs are misaligned at the beginning of the relationship. Founders want money and they naively think that investors want to write checks. It should be like shooting ducks in a barrel – I want capital and you want to give away capital. Why is it so hard?!?
Investors don’t have the time to vet 250 companies (let alone 500 or 1,000) to find the best options. They’ll follow up with maybe one in five founders and do deep diligence on maybe one in 50. A VC tries to say “no” as fast as humanly possible simply to stay above water.
So recognize that when you send an email to a prospective investor, they’re not on your side yet. When you send a deck to a VC, they are looking for any possible reason to move on and forget you exist. Your job is to keep them from doing what they desperately want to do.
If you knew this to be true, would you rewrite that email? Revise your deck?
#startups #venturecapital #pitchdecks