Trust matters more than anything. Just like in romantic relationships, trust is hard to build and is easily destroyed.
When I get to know a founding team, mutual trust – and red flags to the contrary – are always top of mind for me. Are they honest? Do they value our relationship? Will they be a loyal and considerate partner? In good times and bad, founders have dozens of opportunities to treat their VCs well (or not), and vice versa. Most people talk about how people act through the tough times (cram downs, future fundraising difficulties, wind downs, etc.). But the good times can be just as telling, such as when new investors come in and try to squeeze pro rata allocations. I’ve learned to trust my gut when the analysis looks good but something doesn’t feel right, just as when I’m incredibly impressed by someone that may not have everything quite figured out yet.
Don’t sacrifice the long-term relationship by pretending to be someone you’re not. While not everyone dates to find a spouse, companies would be crazy to fundraise without a goal of signing some serious, binding legal documents. Ditto for VCs with diligence. It’s best to be straightforward about objectives and the state of the business up front (e.g., don’t say you’ve fixed your unit economics when you’ve only run tests suggesting you might be able to fix them). Venture capitalists often joke that you don’t really know what you’ve invested in until after the first Board meeting, but it doesn’t bode well for future fundraising or investor relationships if the honeymoon period is over after three months. In the worst cases, where information provided in diligence is incorrect and violates a rep and warranty in the legal documents, I’ve even seen investors renegotiate the terms of their investment. Meanwhile, founders tend to tell their friends when a VC promises to provide incredible value and then doesn’t ever answer the phone.
Play the field… but only to a point. It usually takes companies dozens of investor meetings to get a round done, so it’s important to cast a wide net. That said, word tends to get around if someone has dated everyone in school – and it’s even worse if that person has thrown themselves at a lot of people with no success. The same goes for those lucky ones who could go out with anyone they please… and then become commitment-phobes as they try to over-optimize their selection process. Everyone is looking for a partner with whom they feel uniquely compatible, and so it doesn’t feel good (or inspire trust, above) to realize that the special bond you thought you shared might be all in your head. It’s a tricky balance, but fundraises tend to go best when they target like-minded partners and both companies and investors don’t hem and haw too much on whether to commit.
It’s not you, it’s me. There are a lot of fish in the sea, just like there are a lot of people in VC. Every investor has their own set of criteria and filters through which they evaluate startups. That means that a company that’s a perfect fit for a B2B SaaS investor might not even get a meeting with a consumer fund. Even beyond those obvious categories, investors’ heuristics depend extensively on their experiences (both good and bad), which vary widely according to historical portfolios and performance. The same goes for founders: some are looking for very active investors with sector expertise, while others seek thought partners whom they trust will help when asked, but not much more. On both sides, it’s impossible to be a perfect match for everyone – and it’s a waste of energy to take rejection personally.
It’s all worth it in the end. Great partnerships are what makes the job worthwhile for those of us on the VC side. Some of my most cherished professional relationships have come through investments that didn’t have an easy road, but did have a high-integrity, talented founder. Life happens. Things don’t go according to plan. But having people to support you through that – and to cheer with you when they go really, exceptionally well – makes it a whole lot more rewarding.