Entrepreneurs hear it all the time from investors — either, “Let’s keep in touch,” or “Maybe there is a fit here; we should figure it out.” Sometimes what the investor is saying is exactly what he means. Perhaps your business is not a fit today, so you should keep in touch over the next several months to see how things develop. Or, maybe it’s just too early in the relationship to determine wheter there is a good fit — you need to share some more information to figure out if you are right for one another.
How to Gauge VC Interest: When an Investor’s “Maybe” Means “No”
Both of those situations happen often and are perfectly acceptable to both the entrepreneur and the investor. What concerns me is when an investor’s “Let’s keep in touch” or “Maybe” really means “No.” Your business may not be a fit and never had a chance with that particular investor or firm. I believe it is in everyone’s best interest to get to that “No” as quickly as possible and move on. You don’t want to be playing an investment guessing game. Unfortunately, those conversations may take a significant amount of time to get to, or may never happen at all. In those situations, the entrepreneur could be left with false hope, spinning their wheels trying to provide additional information that isn’t going to change the investor’s mind. Even more frustrating, the time they are spending with this investor is time they could be spending either running their company or with better-fit investors.
The First Obligation of the Investor
I believe it is the investor’s duty to provide a “No” and the reason for passing as quickly as possible. Up to a week after the initial meetings should be good enough. Admittedly, sometimes a deal is on the fringe and warrants a conversation with the broader investment team. Since those talks usually take place on a Monday, an investor may need that time to gather feedback before telling you no. The ideal situation, however, is being able to say no and explain why your companies are not a fit right on the first call. There are many reasons why that should be very easy — wrong financial profile, wrong sector, or wrong geographic focus, etc. That said, not all investors are alike, and some may offer false hope of a deal. Here are a couple of quick ways to identify whether a “Maybe” is really a “No”.
How to Spot if an Investor is Being Soft and Just Isn’t That into You
- First, look at the firm’s website to figure out who their existing portfolio companies are — do you look like them? Are you consumer-facing, while all of their businesses are B2B? Is your business a hardware company and they don’t have any hardware companies? If your business looks really different from their existing portfolio, you’re probably not going to be a fit for the firm.
- Look at their investment criteria and make sure you ask about it on your first call. It is the entrepreneur’s responsibility to respond to the investor and say “Yes, we fall into that criteria” or “No, we do not.” If your business doesn’t fit into the firm’s investment profile, make sure you are very clear with the investor that there is likely not a good fit at this time.
- Many VCs place a high amount of value on their time. They are trying to find new investments, work with existing portfolio companies, and plan exits. Therefore, their time is limited. Try and figure out if you are getting meaningful attention from the investor. Are they scheduling calls with you and spending time looking over your data? If they aren’t, set expectations about what you are looking for, such as when you would like to select a partner. If they can’t meet those deadlines, it may be best to move on.
- On the very first call, ask “Is this interesting to you?“ and “Do you think we are a fit for your firm?” Many entrepreneurs don’t do this and they leave it to the VC to take action. You should be able to gauge their reactions and assess whether or not it makes sense to continue the conversation. If they say “Yes, but I need to speak with some folks internally,” that’s fine. However, ask them to provide you with a date when they will get you specific feedback.
There are probably plenty of other signals that people have seen over the years and I’d love to hear about them. When do you think a “maybe” is really just a “no?”