Frequent Lies Of Venture Capitalist (VCs And Equivocations)

Venture capitalists fund different varieties of businesses. Though reviewing a business
idea and evaluating its implementation takes time, they must eventually arrive at
a decision as to whether they will fund the
entrepreneur or not. However, they may
equivocate with entrepreneurs, refusing to offer a straightforward “yes” or “no”
about whether or not they will fund the start-up business. Entrepreneurs must take
care when dealing with venture capitalists; while getting a “yes” answer might take
a good deal of time, the entrepreneurs must be certain, after a length of time has
passed, that they receive a response in either direction.

Venture capitalists, as much as any other businesspeople, almost certainly prefer
to avoid conflict, and they may hold off on responding in the negative in order
to avoid potential conflicts. For this reason, many firms may offer deliberate falsehoods
to evade the unpleasant word “no,” or they may pretend more interest in a successful
business idea than they actually possess. Let us examine a few of the excuses venture
capitalists employ in place of a straightforward negative answer and a few exaggerations
they will give an approved start-up business:

The Good Guy vs. His Bad Partners

A venture capitalist may state that he liked your business idea and made every effort
to sell it to his business partners, but that his partners rejected the idea in
spite of its evident merits. While this scenario may well have been the case—perhaps
this venture capitalist did appreciate the idea, even though his valiant battle
against his less eager partners may be an exaggeration—the idea may not have reached
the partners. Sometimes, the venture capitalist with whom the
entrepreneur has discussed
the idea did not feel that the business idea could be successful and therefore did
not bother discussing the idea with his or her partners. If the venture capitalist
indicates that any member of the firm turned down the idea, this is his or her roundabout
way of saying no to the idea.

“We’ll Fund you once you get paying customers!”

Venture capitalists may also avoid the hackle-raising word “no” by claiming to re-evaluate
the business model once they see it generating revenue. Once the entrepreneur has
started the business by him or herself, then, the venture capitalist might be willing
to provide more capital to keep the business running. Considering that the entrepreneur
has approached the
venture capital firm in order to obtain the start-up funding,
this excuse seems a slightly transparent way to refuse start-up funding. Some venture
capitalists rephrase this form of refusal by saying that the entrepreneur can only
convince the firm to invest only once the business has shown itself capable of generating
revenue, again negating the purpose of approaching the venture capital firm.

Venture Capitalist Time Commitment

Venture capitalists who tell an approved business that they will devote a good amount
of time to supervising the business are usually greatly exaggerating. Including
board meetings, an entrepreneur should assume that venture capitalists would spend
between five to ten hours a month on a company.
Entrepreneurs, then, must handle
the day-to-day operations by themselves, keep careful records of interactions and
business, and present these findings at the board meetings in a concise, efficient
manner. The venture capitalists’ main concern is the bottom line: is the company
generating revenue? The owners must expect to handle much of the day-to-day affairs.

Business Networking Promises

At any stage of the process, from seed stage to expansion stage, venture capitalists
claim that they can connect the company with its potential customers. The venture
capital firm may promise to open doors for the new business. Although venture capitalists
can help in connecting with potential customer, every startup realizes that they
can get better connections in a much shorter time without the help of VCs. The amount
of help a VC can provide is always questionable. Start-up businesses, then, should
expect to forge their own partnerships without the help of VCs.

Much as anyone else in the business world does, venture capitalists seek to pursue
significant financial gain for themselves. Entrepreneurs who seek a venture capital
firm’s assistance at any point in beginning their businesses, from starting it to
expanding it, must be able to translate a venture capitalist’s equivocating speech
into plain English and learn when “maybe” means “no” and, “We’re behind you all
the way” means “You’re on your own.”

Written By
Pradeep Tumati (Principle, go4funding.com)

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