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Frequent Lies Of Venture Capitalist (VCs And Equivocations)
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Venture capitalists fund different varieties of businesses. Though reviewing a business idea and evaluating its implementation takes time, they must eventually arrive at a decision as to whether they will fund the entrepreneur or not. However, they may equivocate with entrepreneurs, refusing to offer a straightforward “yes” or “no” about whether or not they will fund the start-up business. Entrepreneurs must take care when dealing with venture capitalists; while getting a “yes” answer might take a good deal of time, the entrepreneurs must be certain, after a length of time has passed, that they receive a response in either direction.

Venture capitalists, as much as any other businesspeople, almost certainly prefer to avoid conflict, and they may hold off on responding in the negative in order to avoid potential conflicts. For this reason, many firms may offer deliberate falsehoods to evade the unpleasant word “no,” or they may pretend more interest in a successful business idea than they actually possess. Let us examine a few of the excuses venture capitalists employ in place of a straightforward negative answer and a few exaggerations they will give an approved start-up business:

The Good Guy vs. His Bad Partners

A venture capitalist may state that he liked your business idea and made every effort to sell it to his business partners, but that his partners rejected the idea in spite of its evident merits. While this scenario may well have been the case—perhaps this venture capitalist did appreciate the idea, even though his valiant battle against his less eager partners may be an exaggeration—the idea may not have reached the partners. Sometimes, the venture capitalist with whom the entrepreneur has discussed the idea did not feel that the business idea could be successful and therefore did not bother discussing the idea with his or her partners. If the venture capitalist indicates that any member of the firm turned down the idea, this is his or her roundabout way of saying no to the idea.

“We’ll Fund you once you get paying customers!”

Venture capitalists may also avoid the hackle-raising word “no” by claiming to re-evaluate the business model once they see it generating revenue. Once the entrepreneur has started the business by him or herself, then, the venture capitalist might be willing to provide more capital to keep the business running. Considering that the entrepreneur has approached the venture capital firm in order to obtain the start-up funding, this excuse seems a slightly transparent way to refuse start-up funding. Some venture capitalists rephrase this form of refusal by saying that the entrepreneur can only convince the firm to invest only once the business has shown itself capable of generating revenue, again negating the purpose of approaching the venture capital firm.

Venture Capitalist Time Commitment

Venture capitalists who tell an approved business that they will devote a good amount of time to supervising the business are usually greatly exaggerating. Including board meetings, an entrepreneur should assume that venture capitalists would spend between five to ten hours a month on a company. Entrepreneurs, then, must handle the day-to-day operations by themselves, keep careful records of interactions and business, and present these findings at the board meetings in a concise, efficient manner. The venture capitalists’ main concern is the bottom line: is the company generating revenue? The owners must expect to handle much of the day-to-day affairs.

Business Networking Promises

At any stage of the process, from seed stage to expansion stage, venture capitalists claim that they can connect the company with its potential customers. The venture capital firm may promise to open doors for the new business. Although venture capitalists can help in connecting with potential customer, every startup realizes that they can get better connections in a much shorter time without the help of VCs. The amount of help a VC can provide is always questionable. Start-up businesses, then, should expect to forge their own partnerships without the help of VCs.

Much as anyone else in the business world does, venture capitalists seek to pursue significant financial gain for themselves. Entrepreneurs who seek a venture capital firm’s assistance at any point in beginning their businesses, from starting it to expanding it, must be able to translate a venture capitalist’s equivocating speech into plain English and learn when “maybe” means “no” and, “We’re behind you all the way” means “You’re on your own.”

Written By
Pradeep Tumati (Principle, go4funding.com)

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