Fear, Competition, and Greed: A Checklist for Making Your Deal Hot to VCs
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introductions. Introductions from your lawyer, accountant, or business acquaintances with VC contacts are invaluable. Approaches at a relevant conference or speaking opportunity can also work. E-mails or snail mail with business plans won’t get past an Associate’s screening process.
3. Experienced entrepreneurs understand and leverage the VC network. An entrepreneur can expect that a great investment opportunity will gain positive momentum by reinforcement. If an entrepreneur pitches a great idea to a relevant VC, the likely outcome will be positive buzz and promotion within the VC community. The converse is also true. No VC wants to be the last funding option for a tired and shopped investment opportunity.
4. Experienced entrepreneurs create scarcity in their investment opportunity. If there is an unlimited amount of time, a VC will inevitably use it to collect more data and more validation. However, if there are perceived time pressures of other VCs getting ahead in a process, competitive juices flow and momentum pushes the process forward. Also, having three or more VCs in the process creates scarcity because each knows that at least one investor will likely be left out of making the investment.
5. Experienced entrepreneurs negotiate from a position of strength. Having the luxury of multiple term sheets or multiple leads is a great outcome for an entrepreneur. They can then negotiate from a position of strength and push hard on terms that aren’t entrepreneur-friendly. The entrepreneur’s confidence at the negotiating table, a willingness to walk away or ‘fake it ’til they make it,’ often plays to the VC’s emotion, fear, and greed.
6. And finally, experienced entrepreneurs know that once negotiations are done, we all need to get on the same side of the table to build value in the enterprise. I am often very surprised when entrepreneurs continually bring up past negotiating battles won or lost, and are still justifying a position months or a year later. This just takes away from the goal of everyone who is investing time and money—that is, to build a great and enduring business.
So, I’ve now come clean to the entrepreneur at that networking event. The ugly truth is that a great investment opportunity is not necessarily a “hot” investment opportunity, and that it is only human emotion that separates the two.
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