How VCs Say “Yes”

When you are raising venture capital, a VC’s most common answer is ‘no.’ Sometimes, if you are lucky, they start to say ‘yes.’ Here is what that looks like.

While VCs most commonly say ‘no,’ and a fast ‘no’ is the next best thing to a ‘yes,’ if you are trying to raise venture capital, the answer you want to hear is ‘yes’!

The First Sign of ‘Yes’

Once you identify venture capital funds that could be a good fit for your startup, the first sign of ‘yes’ is can you get an initial introductory call? A strong story helps. Strong alignment with the VC’s declared objectives (on their website) helps.  A warm introduction from someone whom the VC respects and who has gotten to know you definitely helps. 

Even if you get that first call, it can be tricky to determine a VC’s actual level of interest. Just because they reach out to you for an introductory meeting does not mean they are seriously interested.  It could be that they are trying to expand their understanding of the deal flow in the fundraising market space.  It could be that they are investigating potential competitors of one of their portfolio companies. It could be that they want to tell others they looked at your deal.  It could be that they are training one of their junior associates.

If you are lucky, maybe the VCs are even intrigued by what they know about your concept, your industry, your technology, or your team.  The number of initial calls I have had with various VCs that never developed into a second discussion is practically countless. At least I choose not to count them!

The Second Sign of ‘Yes’

The second sign of ‘yes’ is can you get to a second and then third conversation? The overall theme of ‘yes’ is time. A VC’s most precious resource is their time.  Beyond the first call or meeting, you can get a sense of their level of interest by assessing their level of engagement with you. When a VC becomes intrigued by what you are doing, you will know by the tell-tale sign of their time investment. If you do not see them investing their time and the time of their partners, then there is a good chance the interest you think you see is a mirage.

Until a VC completes an investment (which means actually transferring the funds into your company’s account), remember that they can and often will opt out of your opportunity. So you want to be constantly looking for signs that they are continuing to invest their time in your deal.

You are competing for their mindshare, time, and attention throughout a multistage process. This will feel overwhelming because when they are engaged, you will receive a torrent of requests. If they are not keeping you busy, become suspicious about their continuing level of interest.

A Series of ‘Yes’s

Ultimately, to get across the finish line, you need to get a series of ‘yes’s.  Here are examples of incremental ‘yes’s along the path to closing a VC investment.  You will not necessarily get them all, but you are looking for a steady stream of ‘yes’s like the following:

• The VC asks for a follow-up call to get into more detail or to meet other members of your team.
• You are invited to meet with a senior partner.
• The VC mentions that they called a few of their advisors to get their opinion on your space and your concept.
• You are told their partnership meeting review went well, and they would like to do some diligence on your opportunity.
• The VC mentions that they reached out to a few of your potential customers to get their opinion on the need for and attractiveness of your product.
• You are asked to provide a bunch of information and analysis about every conceivable aspect of your product, your customers, your technology, your competitors, your data, your commercial plan, your financial models, your employees, your existing investors, your use of proceeds, your intellectual property, your contracts, your license agreements, your capitalization table, and so on.  (This list is in no particular order.)
• Your lead VC wants introductions to your Board members and existing lead investors. They also want to know the level of interest amongst your existing investors in participating in the next round.
• You are asked who your attorney is.
• You are asked to respond to their legal due diligence checklist and possibly create a deal room to facilitate information sharing. 
• You are invited to pitch the whole partnership.
• Your lead VC wants to know what other VCs are expressing interest (be extra careful here).
• Your lead VC wants to discuss the conceptual structure of a deal and who else might be interested in joining the syndicate.
• You are told to expect a term sheet — and then the delicate negotiations begin. 
• Your lead VC is asking for information to put into their deal memo for their Investment Committee.
• And so on.

If all goes well and you clear all the hurdles, you may indeed reach the final ‘yes,’ which is a pile of signed documents and a wire transfer of funds into your account.  And then the real work of turning that investment into value begins.