Not Interested: How to know whether you've actually got an investor on the hook.

I don't think there's ever a time when I feel more like I'm raining on parades as when founders tell me how interested other VC firms are in investing.  I've seen it time and time again where founders, understandably apprehensive about fundraising, read too much into their engagement with investors--especially non-partners at firms.

The founders will say things like the following--and then comes my splash of cold water, which is honest, but also makes me feel like the bad guy, or not enthusiastic about the company.  In reality, I just don't want the founder spinning their wheels and wasting their valuable time.

"They're interested, but it's too early."

There are tons of examples of later stage venture firms not only placing seed bets, but also skipping right to Series A with huge "seed" rounds right out of the gate.  If Mark Zuckerberg was going to start a new company tomorrow, do you think he'd be too early for anyone?  No.  There are also lots of examples of companies who get funded by later stage firms that don't have the metrics that we've been told you need--$150k in MRR, a million users, whatever. 

"Too early" is a pass.  

You might take enough risk off the table for them in the future and they might come in at a later right, sure... but if they're not writing a check now, they're passing.  When you get a pass, move on, don't keep your hopes up, and go back to work.

"They're very interested if you can get a lead."

There are some firms that, as a policy, don't lead.  That's fine, but saying you're interested pending a lead is not saying you're committed.  Committing is saying "If you find a lead, we'd like to come in for $200k, assuming standard terms and the price isn't anything more than X."  Even better is when that firm reaches out to firms that do lead and says, "We've committed, but we need a lead."  Those people are basically in, and everyone else is just sitting on the sidelines with their thumbs in their butts wasting your time.  Many of those people are assuming you won't get a lead, and they're just being polite, and if you do get one, it's a good way to cover themselves in case they missed something.  This way, they try to guarantee that if someone else jumps in, they get a second look.  It's a free option, so why ever give a definitive no?

"[Non-partner] is really excited about it and is going to bring it to their partner meeting."

Listen analysts and associates...  I've been in your shoes.  I've been the junior person around the table trying to get partners excited about a deal.  The absolute worst thing you can do is fail to be transparent with a founder as to where your team is on a deal, and to lack the firm awareness to realize whether you have any internal traction.  It wastes founders' time and ruins your credibility.  So, when you know that founders are going to hinge on every little indication of interest, you should be straight with them about your process and who gets to make the decisions.

Unfortunately, even when you are transparent, the words "partner meeting" make founders think they are just a week away from a term sheet when, in reality, they're one of many line items likely to be passed over. 

What you really need is partner interest.  Even when you've got a principal, like I was at First Round, who can do deals, you still need partner interest to get the check approved.  So, realistically, unless you've got partners showing up to meetings with you, staying the whole time, and engaging with you after, taking multiple meetings, you really don't have anything.

Two things to watch out for:  The partner who gets dragged into a meeting.  Who set this meeting up?  Does the partner leave after ten minutes?  Do they engage with you after?  Do they show up in the next meeting?

Two is the partner cc'd on e-mail while the junior person does all of the talking.  This happens a lot with growth stage firms that do a lot of random cold calling.  I'll bet these firms have a special account or filter that allows them to ignore that CC, but it makes you feel like the partner is interested.  

"We want to see you get up to X milestone."

First off, like I said before, there are plenty of examples of firms that invest before conventional milestones if they really like something.

Second, this isn't a progress.  It's "come back to us when you get there".  If a firm really thought you had a 100% chance of getting there, why would they wait, potentially risk losing the deal, and pay up for it later?  The reality is that they're just setting a time for a check in.  It really doesn't mean interest at all--especially if they're not engaging.  Engagement means continued customer introductions, or potential talent introductions.  They start acting like an advisor--maybe even having regular calls with you.  

So how can you tell whether or not a firm is actually interested in investing?

a) They give you a term sheet or actually start discussing not only the terms of a deal, but how much they'd like to put to work.

b) You've met all of the people necessary to put a deal together, and those people take initiative to be engaged with you, multiple times.

c) You actually get invited to an official weekly partner meeting.  That's a thing.  

d) Senior people keep hounding you--like, daily.  

How else would you know?  You ask them.

Founders should be asking filtering questions--the kinds of questions designed to kick investors out of their pipeline.  I know it feels good to have a lot of names in a Google sheet, but a lot of those leads are cold or dead.  Find reasons to knock them out by asking questions like "By when can I get a firm yes or no?"  "Who needs to sign off on this?"  "What are your remaining issues?"  "Who in the firm has said they'd like the firm to invest?"  "Who is against the deal that I need to work on?"

Better to be positively surprised that someone came up with an offer than to feel like you're going to get something done and then have your pipeline fall apart.