Raising VC money: how to handle the VC partners’ meeting?

This is the fifth post in a Friday series on “raising VC money”. For the list of topics we are covering, click here. In this post, we’ll focus on “how to handle the VC partners’ meeting.” It is a unique meeting. It’s a smaller version of pitching the Supreme Court.

So, you’ve done some research and have come up with a short list of VCs (suggestions here), you’ve figured out a way to ask the VC for a meeting (more here), and that meeting went well (more here). Your VC will now start due diligence (click here), and if everything looks good, he will then invite you to present to him and all of his partners.

This is a make-or-break meeting. It is the bottom of the 9th, the bases are loaded, and your team is down by three runs. All eyes are on you. You will walk into a conference room, a bunch of VCs will be seated at a large conference room table, and you will stand up and pitch them. Anyone can interrupt you at any time and ask you a tough question.

Do well in that meeting and you’re likely to get money. Do poorly, and it’s very likely game over for you at that venture firm.

One important aspect is this: if you have yet to be invited to pitch the full partnership, red flags should go up in your head.

Here’s a tough living example. Last week, I heard a horror story from an entrepreneur. He had met with one VC, a junior partner, at a very well-known firm. He had dozens of meetings with this VC. He said he has emails from this VC saying his firm will invest.

Suddenly, the VC passed on this person’s idea. This entrepreneur had raised his burn rate due because he had added employees the VC wanted him to hire. The company folded and the entrepreneur had depleted his savings.

It’s tough to know what really happened in this situation, of course. There are always two sides to a story. But what is clear is that there was a severe communication breakdown between the VC and this entrepreneur.

Also, this entrepreneur had never been invited to pitch the VC’s partnership. He didn’t realize that he was still early in the sales cycle with that VC.

So, the flip side is very positive. If you are invited to pitch all of the partners, here’s the good news: your odds of getting money are decent to very high. Here’s why.

First, your business idea has been discussed a few times at that VC firm—and, you have passed the smell test. When firms meet (and they do so normally on Mondays), they spend most of their time on the investment pipeline. Which new start-ups look interesting?

When an investor likes you and your idea, he will put you on the “meeting agenda” for discussion at the next partners’ meeting. This VC Point Person will then introduce your company idea, and will then see how the partners react. At some firms, a Point Person writes a very long memo, which is circulated over the weekend to “socialize” the investment opportunity.

The goal if this initial intro is the Point Person wants to gauge his partners’ reactions. If many partners have serious concerns about you or your idea, your Point Person will likely “drop” you. It may not be worth his time to try to overcome the opposition.

If your Point Person is junior, or is a new employee with the partner title but without the partner economics, he will be the most sensitive to any whiff of opposition. On the other hand, a very senior partner may feel politically confident enough to do some diligence and try to persuade his group to come along.

Second, your Point Person will schedule a full partners’ meeting only if he feels it is a good use of time. Realize that many large VC firms have 50 to 100 (or more) companies in their portfolios (note, the web sites understate these numbers because seed investments are normally not listed there—more on that here). So, these VCs are working very hard monitoring the investments they’ve already made.

So, it is a very big deal for your Point Person to ask for 90 minutes from each of his partners (a one-hour presentation by you, and a private 30 minute de-brief discussion after you leave). A politically-attuned VC will not do that if he thinks his partners are likely to trash you or your idea. It’s a personal embarrassment, and no one wants to get an internal reputation for wasting his partners’ time.

Third, your Point Person will have done a great deal of work already and enters the partners’ meeting with some momentum. If his partners raise initial concerns about a new potential investment, a good VC will then do some due diligence to try to address those concerns.

For example, perhaps one of the partners has heard something negative about you. Well, your Point Person will then do some confidential reference checks on you. If they’re positive, he will then discuss his findings with that partner who raised the objection. Hopefully, that partner will then back off his concern.

At the next partners’ meeting, your Point Person will then present the diligence findings and suggest you are a good person after all. Objection overcome. The traffic light has gone from yellow back to green for your start-up.

So, given this reality, here’s my suggestion to entrepreneurs: heavily lean on the Point Person for advice.

This VC wants to give you money. He wants his partners to jump and down in excitement. He wants his partners to feel that he is a good VC who sources good stuff. So, your Point Person is aligned with you.

Every VC firm has its own style, and you need to understand how you can best communicate to them about what they care most. So, here’s some advice.

Advice #1: review your presentation with your Point Person. Ask for a meeting and get this person’s feedback on each slide, both on the contents of the slide, and how you deliver it.

Some VC firms want to start with market size, but others prefer that pitches start with the team. Some want a lot of financial projections, others care less about that. The point is this: don’t waste a lot of time on topics that firm doesn’t value.

Advice #2: ask your Point Person to go through each of his partners—and identify the skeptics. This is insanely critical. You want to know which partners are leaning forward on funding you, and which ones are leaning back. Ideally, your Point Person will share with you his partners’ objections and what you can say in the meeting to overcome them.

Advice #3: ask other entrepreneurs about their experiences at that VC firm. You’ll learn a lot if you can get a sense for that firm’s style. Do they have a lot of techie folks who ask a lot about technology, or are most of the guys from sales backgrounds and care more about what initial momentum you can show? Network around. Get best practices.

This is very important: is that firm’s decision-making collegial, or is there a Chief Partner (more on that here) who makes all the calls? You really cannot go to your Point Person for this info because it would be hard for him to admit to you that he may not have much power in his partnership. You need to ask other entrepreneurs.

Advice #4: after the meeting, force your Point Person to show his cards. After a full partnership meeting, you will leave the room and the group will then discuss your pitch.

Each partner will speak and give his thoughts. Some will like your idea, others may not. Your Point Person then has a very delicate job to do. He has to “read the room” very carefully and see if he has enough momentum to take the next step and give you a term sheet.

It is easy when everyone is positive on your pitch. It becomes hard if one partner has serious objections. Some of these debates are short, but some can be quite long and heated.

Regardless, the VC firm will come to a consensus on what to do next: invest, pass, or maybe. The first scenario is obvious. You will then be showered with love.

The next two scenarios can be tough to navigate. A VC firm may want to pass, but rather than insult you or to keep “an option alive” in case you get more momentum in the coming months, will instead say “maybe.” You need to try to find out if a “maybe” is a real maybe or a cover story. Force your Point Person to show his cards. You need to know if a maybe is instead a gentle and diplomatic “no.”

So, I hope this is useful info to entrepreneurs. Next Friday, I’ll cover “what to do when you get a term sheet.”

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