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Unexpected Startup Lesson #3: Why You Can’t Read a VC

Joe Heitzeberg
June 10, 2010

This post is the third of a series on “unexpected lessons” learned through my experience as co-founder and CEO of Snapvine, a venture-backed mobile social networking service founded in 2005 and acquired by WhitePages in June of 2008.

When I set out raising our first round of financing, I was excited to have the opportunity to meet and directly interact with many super experienced angel and VC investors, many of whom had substantial industry experience and had been along for the ride on any number of high profile startup successes right from the beginning. This, I figured, would be an incredible chance to get feedback and input on our ideas and direction. I imagined it would be like a business school case discussion, only better, with just 3 or 4 participants — all protagonists.

I was wrong. That’s not how it works at all. Instead what I found was, by and large, every coffee, meeting and partner meeting was a series of largely one-way dialogues covering the basic elements of the pitch (team, market, demo, etc) and some fairly basic questions.

For the most part, the valuable parts were missing: body language, direct feedback, creative suggestions and challenging pointed questions — things that could let me know how the other side thought of the opportunity and things that could help me improve the pitch.

You can’t read a VC.

I’ve done deals (sales and business development) and I think of most things, from hiring to people management as being essentially “sales” where reading and responding (on the fly) to the other side’s concerns, needs, interests and ultimately reading what they think is paramount. In the case of pitching VCs, I came to realize that these cues were going to be absent.

In fact, when I thought I had a clean read on things, most of the time it was ass backwards. Here is one true story, paraphrased and names withheld:

Scene: at final full partner meeting
9:00am – start of my presentation
9:00am – 9:45am – peppered with continuous stream of semi-relevant interruptive questions
9:45am – blackberry beeps and one partner leaves abruptly
9:46am – second partner seemingly hitches on that opportunity to leave
10:00am – meeting ends. everyone leaves (I’m on slide 8 of 13)
10:15am – (email to team)
“Well, that totally bombed. We won’t be hearing back from them. I guarantee it.”
11:00am – (partner phone call to me)
“Thanks for coming in. Everyone enjoyed the meeting and we are excited to work with you. We would like to put a term sheet in tonight!”

Through two rounds of fundraising and negotiating several term sheets, it didn’t get much better.

Here’s the thing — it’s not that I’m bad at reading people, my theory is that since VCs are getting pitched all day long by so many people, that have grown numb to the usual 2-way feedback process. Also, they have zero incentive to give feedback in the first place. Direct, critical feedback might offend the entrepreneur and cut off an opportunity to invest. And overwhelmingly positive feedback might reduce their negotiating leverage. VCs don’t say “no” they just say “we would like to hear more, later”…it is their way of preserving option value.

Of course not all VCs are like this, which is how, in part, we chose the investors we went with.

Anyway, I’m curious to hear from others who have been through the fundraising process. Did you feel you got solid feedback from investors during the process?

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