No one likes it. Founders don't start companies so they can spend half their time asking people for money and VCs don't love the dance either.
However, it's a necessary animal, so the least everyone can do is act professionally, and most of all value each other's time. That's what I'm most frustrated by--the lack of respect for other people's time. Too often, both sides walk away from fundraising processes feeling like a lot of it wasn't time efficiently spend--even when it does lead to a round.
So here are a few things both sides should do to make the whole thing go a lot smoother.
- Be upfront about the possibility of you investing now versus whether this is a "get to know you" kind of thing. It's fine if you want to learn about blockchain or you never do pre-product and maybe the founder will oblige your curiosity at some point, but right now, they need cash, so don't waste their time if chances are 0%.
- Don't take multiple meetings and then pass for a reason that you should have passed on at either the e-mail state or after the first meeting. "We just can't get there on a consumer deal" is not a reason for passing after five meetings.
- Be transparent about process and timeline. If you need 8 partners and a Magic 8 Ball all to agree, let them know when you've decided to start serious due diligence.
- Never ever take a meeting with a founder when you're in the middle of fundraising your own and can't write a check within reasonable timelines for this round (usually about 30-60 days for a seed.)--unless you let them know beforehand.
- Make it clear where your money comes from and what control you have over it. Are you a fund? Is it personal money? How did you come into it? Does anyone else need to approve this deal?
- Make references to founders you've backed available upon request.
- Be transparent around where you are in the fundraising process. Does the VC need to call a special partner meeting because you already have three term sheets or is this the beginning? I know you want to move fast, but don't make a VC prioritize your timing when I'm literally the first meeting. I have other founders who literally need to know tomorrow or the round will close.
- If you're going to take a meeting with an investor and you don't think it's a good fit, just say it. Don't make them do any due diligence or make an offer only to not take it.
- If you wind up getting more interest than you anticipated in a seed round, give the investors a fair opportunity to work together. When you send terms around, get a hard number from everyone within a reasonable deadline. I favor the simple math approach. Take the amount you want to take, and divid it by the amounts offered based on everyone's average or requested size. If you're 2x oversubbed, as long as you like everyone, give them a shot to do half their allocation, and distribute evenly what isn't taken. People might gripe or bail, but the absolute worst is when you do a bunch of work, take meetings when you say you're still fundraising, and then get completely shut out of a deal.
- Don't accept introductions to other co-investors investors unless you're willing to take money from the person making the introductions. If someone shows me a deal, and then you cut that person out, that's professionally embarrassing for them and puts me and them in a weird spot. There's just no reason for that if you manage the process right. If you really don't want to work with them, just be upfront about it.
- Take a moment to think about who might expect you to pitch them--former bosses that have been successful, people who funded the last place you worked at. If your experience is due in part to the effort and resources of others, it feels like good practice and courtesy that you at least give them a look--or let them know why you might be going in a different direction.
For both sides:
- Take professional meetings in professional or public settings during business hours--busy hotel lobbies are ok, but ideally, you avoid happy hour time because that's a less professional vibe.
- Alcohol should not be consumed in a professional discussion between two people where money and uneven power dynamics exist.