When Investors Say Yes but Mean No
Investors don’t like saying “No” to your face as a founder, even if there is zero chance they will invest. This creates difficult situations for founders while fundraising, which can be catastrophic for your round. Here are some of the most common scenarios and what to expect:
VC Speak
VCs will often sound positive during a conversation to give themselves the option of saying “Yes” later. Founders can mistake these positive comments for a committed “Yes”. Here are some of the most common, vague phrases VCs use:
“I will speak to my Partners on Monday” — This does not mean you have made it to the partner meeting, and thus a term sheet is not imminent. The VC you’re talking to will usually discuss your company for less than one minute along with many other companies. This situation will likely result in a “No” unless the group expresses overwhelming excitement.
“Let me introduce you to an expert on this tech” — This does not mean the VC is starting deep diligence on your company. Instead, this usually means the VC does not see enough traction in your business to invest but might become more interested if the “expert” is very excited about your technology. Given the expert is likely to be a skeptic, you should expect a “No”.
“I will do some diligence on this market and get back to you” — The VC is declaring their minimal knowledge on your market and would need to get up to speed. That is unlikely to be as interesting as working with a company in a sector they know; unless you have a signifigant tech advantage or a lot of traction. This is almost certainly a “No”.
Time Wasters
Some people in the venture ecosystem claim to be investors, but are not. Or alternatively, some of these people are investors but they have major caveats with taking their capital. Here are some of the most common facades:
The Fantasist — These people are not in a position to find the capital to make an investment in your company, but let excitement overwhelm them and agree to invest anyway. Usually they will back off from completing the handshake protocol but some go as far as signing your paperwork. When you start to suspect this situation emerging (e.g., unclear timeline for wiring money, hard to reach), give the investor clear deadlines, on a polite but firm phone call. If they miss the deadlines, move on as if it’s a “No”. (The Fantasist is closely related to The Almost VC, but The Almost VC usually has more credibility on their resume).
The Almost VC — There are literally hundreds of new VCs every year and not all of them will raise enough to start deploying capital to companies. Some VCs, still early in their own fundraising process, will commit with a “Yes” to companies they cannot currently fund. The VC is typically hoping they will complete their own fund’s raise, before your company’s round closes. If the VC is upfront about this situation, there usually is no problem. However, if the VC does not inform you and becomes a last minute “No”, it can cause serious problems as your round closes.
The Syndicator — If an investor is using a “Syndicate” on Angellist (or similar platforms) to raise the capital for your company’s investment, there are some caveats they should discuss with you in advance: 1) The amount invested depends on the syndicate’s interest and is not always consistent every deal, as many syndicates have dozens of small participants, 2) The syndicate raise process requires time and effort, often open for 2–6 weeks plus may need another 2–8 weeks to collect money from numerous participants. These delays can drastically extend the amount of time you’re focused on fundraising. Do not bank on this being a “Yes” until the money is in your account.
Imposters
Unfortunately, there are some whose business is based on somewhat deceptive practices. They target founders during a fundraising process, when your desire to get the round closed quickly can be used to their advantage.
The Investment Banker — Bankers typically make money by taking a percentage “finders fee” from the money they “helped” you raise for your round. They often act like a normal investor in the first meeting, only to offer their introduction services later. Most investors do not like introductions from bankers, so it’s best to find another route rather than be tempted by the banker’s offer.
The Silent Partner — Some people with bad, public reputations and plenty of capital, want to invest in startups. Some do this as a “silent partner”, where someone with a better reputation is paid to source their deals. The deal-sourcer will often behave as if they are an investor, only to reveal the capital is coming from another party when the documents are being signed. People with a bad reputation who behave deceptively should be avoided, so do not take their money — you will likely regret it.
During the pressure of a fundraising process, don’t let investor behavior fool you into optimism. Be aware of the common situations and bad actors, as it could save you a lot of time and potential disappointment.
This article is part of a series on Seed Fundraising.
1. When to Raise Money
2. How to Build a Deck
3. VCs vs. Seed Funds vs. Angels
4. How to Get a Meeting
5. How to Request an Introduction
6. How to Get Early Momentum
7. How to make a Good Pitch Great
8. The 5 Most Common Pitch Mistakes
9. Meeting Requirements
10. The Basics of Meetings
11. How to Handle an Angel Investor Meeting
12. Know these Numbers for your VC Meeting
13. 4 Investor Gotcha Questions
14. How to Follow-Up After an Investor Meeting
15. How to Close the Lead Investor
16. The 4 Stages of a VC Process
17. How to Raise a $2 Million Seed Round
18. Go from Investor YES to Cash in Hand
19. When Investors Say Yes but Mean No
20. When and When Not to Use an Investors Name
21. Stop Making These Common Fundraising Mistakes
22. How to Avoid Bad Terms that Kill Startups
23. What to do After Receiving a Term Sheet
24. Term Sheet Problems Part 1 — Money Talks
25. Term Sheet Problems Part 2 — Boardroom Blues
26. Term Sheet Problems Part 3 — Side Letters
27. 10 Traits of Successful Founders
Sterling Road invests in pre-seed B2B startups based in North America. Full process here: sterlingroad.com/process.
You can reach me here: ash@sterlingroad.com
Thanks to Kaego Rust for their help on this article.
Photo by Tom Roberts
