The best VC pitch tip that I stole

Posted on Jul 9, 2009 | 10 comments


It’s been really fun keeping a blog again.  I haven’t been writing since I sold my company to Salesforce.com. One of the things I’ve enjoyed the most is the conversation that it has created for me.  More people have left comments on the blog, sent me Facebook notes or dropped me emails with either question, ideas for a post or challenging something that I’ve written.

The best comment that I’ve received was from my friend Jason Spievak, co-founder and CEO of RingRevenue whose company I invested in early this year.  His comment was so obvious when I read it that I wish I had thought of it myself.

He said, “Given that most capital meetings don’t lead to a next step, I’ve found one great rule to be: never leave a meeting without getting a reference to another capital source.  VCs will usually be willing to give you a name of someone else who might know your space better or otherwise be a better potential investor fit rather than just send you out the door with a “no thanks.””iStock_000008460312XSmall

So true.  Most VCs want to help even if they don’t think the deal is a good fit for them.  And we really don’t enjoy having to tell people “no” all the time (which is maybe why so many VC’s say, “we love your business – just come back and see us when you get some traction.”  I call it the “soft” no.)

By the sheer law of numbers we have to say no to most of you.  Consider this: I see in person or take web conferences for about 10 business minimum per week.  Sometimes it is 15, sometimes it’s less.  But that’s about 400-500 deals / year in one stage or another.  (That excludes the many plans I receive that I deem not appropriate for a call or meeting). We’re 4 partners and we also have 2 associates and an analyst.  As an office we see upwards of 1,000 deals / year.  My math might be off a little because it’s late and I had a killer Tanqueray 10 martini tonight but we see a lot of deals.

So assuming that in a good year we fund 10 deals.  That’s a 1% hit rate at best.  So I like to tell people that  by definition we have to turn down 99% of business that we see (a prominent entrepreneur who sold 2 businesses and then worked in VC for 8 years before quitting and going back to entrepreneurship said that he wanted to get out of VC because he got tired of turning people down all the time).  So maybe that’s why there’s so many memes about how to best turn down entrepreneurs (see Fred Wilson and Brad Feld). It’s also why my philosophy is, “if most of the people that I see I’m going to need to turn down I might as well be nice to them.  If I can’t fund them, at least I don’t want them to think I’m a dick also.”

So for many of the people that I see I try my best to give referrals where I can.  If it’s not a good business I really do try hard to protect my friends and colleagues from having to sit through a time-wasting business.  In that case the buck has to stop with me to tell the person that I’m not convinced about the company.  But for many businesses it might be a matter of: stage too early, stage too late, wrong sector, wrong geography, too competitive to an existing investment, we have past “road kill” in a company that is similar in nature or frankly maybe I’m just working hard on 2 other deals and I don’t have the time or capacity to evaluate the deal.  In any those cases I’m happy to give an intro and I usually try my best to offer (as I did with an interesting company I saw today called Ride Amigos that came in knowing they were too early stage for us but I feel confident will raise money from somebody else).

But as with most of life, most people don’t ask.  You don’t ask, you don’t get.  I always tell people who are in the job market that when you do an informational interview your goal isn’t to ask the person you’re meeting for a job, your goal is to ask for 3 more intros.  In a way I think VC pitches are the same.  Take Jason’s advice.  In a VC meeting if you get the sense that the firm isn’t ready to move don’t be afraid to say, “if you don’t see us as a perfect fit for your firm do you have anybody else in town you think we’d be a better fit for?”  And if your rapport is good (and it won’t always be) ask if they’d mind intro’ing you.

Thanks for the tip, Jason.

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  • Greg

    Mark,
    Great point about always asking for a referral. I’m not pitching VCs but I ask for referrals every time I have a networking meeting. It’s led to some amazing connections and friends.

  • marksuster

    Thanks, Greg. Totally agree.

  • marksuster

    My content gets syndicated over at http://www.cloudave.com and a user wrote a great comment there so I wanted to post it here, too, with my response. It’s worth being aware of this issue.
    ___________________________________________
    Mark,

    First of all, let me say great blog! Really enjoy your posts and look forward to future ones.

    I would put a different spin on Jason’s suggestion. In general, it is very difficult for a VC to introduce a company to another VC because the first question usually is “why aren’t you investing?” Stage can be a good answer, but it’s not always believable (i.e., most firms opportunistically do early or late stage investments) and I’m skeptical that these intros lead to anything. But introductions to a VC’s portfolio companies is usually a much easier ask, even if the VC isn’t a good fit from an investment partner perspective.

    just my quick two cents.

    st
    _________________________________________

    My response:

    I understand the comment and I know some people feel that way. It hasn’t been my experience. When I get calls from other VCs who I like and respect I always ask why they’re not investing but I know sometimes geography, topic, stage or whatever precludes people. I often get called by seed stage funds saying, “valuation too high for me, maybe OK for your fund.”

    When I refer a deal it is often, “I really liked the entrepreneurs but this isn’t going to be a big enough business for us. For your $20 million this might be the perfect fit”. Smaller funds like companies that require less cash and may exit at smaller valuations than we would typically look for.

    Also, I often refer deals and say, “we may end up looking at this company but if we do we’d want a co-investor. right now we’re waiting 3 months to see how their user adoption goes but we like them.” There are many ways to make an intro work.

    I also intro NorCal people to my VC friends there. If it is too early stage and it SF it might make more sense for somebody else to seed.

    Thanks again for your thoughts. They are valid and something entrepreneurs should be aware of.

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  • aproductguy

    Great tip. Worst case is you get another “no” and you’re back where you were. I think my friend’s philosophy when it comes to approaching women at bars applies to pitching VCs – the sooner you can get over your fear of possible rejection and learn to embrace the “no”, you’ll likely start to get more yeses. :)

  • marksuster

    ha. I had friends like that in my 20′s also. They said it was just a quantity game and getting to “no” faster was better than wasting your time ;-)

  • http://www.pitchrecycler.com/ Adam Rentschler

    Mark — Been reading your blog with interest. Thanks for your posts.

    Per aproductguy’s post above, I think the best advice out there is for folks to embrace “No,” and learn from it. In fact, I think that one is taking a lazy approach if one doesn’t understand the implications of “no” before charging ahead into another pitch meeting.

    Have a look if you’d like at what I wrote a while back about the importance of “No”:

    http://www.adamrentschler.com/Tech_Strategy/Blog/Entries/2009/3/4_Getting_to_No.html

    Keep up the good work,
    Adam

  • marksuster

    Thanks, Adam. Great post. I’m a big fan of the “no” actually, which is why I believe I likely tell people no more than most VCs. Soft “no’s” (e.g. we love you but for reason a,b,c come see us later – and obviously only if you’re doing really well) don’t ultimately help the entrepreneur. In my “Pitching a VC” series I have a blog post reserved for the soft no, which I look forward to writing. Stay tuned and thank you for your comments.

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  • George Morrison

    So true. VCgate database (http://www.vcgate.com) is a 4500 investors worldwide database that allows searching setting preferences as geographical location, stage industry preferences, all this plus instant emailing. This can save time for both investors and entrepreneurs and will certainly decrease the number of embarrassing refusals.

  • George Morrison

    So true. VCgate database (http://www.vcgate.com) is a 4500 investors worldwide database that allows searching setting preferences as geographical location, stage industry preferences, all this plus instant emailing. This can save time for both investors and entrepreneurs and will certainly decrease the number of embarrassing refusals.

  • George Morrison

    So true. VCgate database (http://www.vcgate.com) is a 4500 investors worldwide database that allows searching setting preferences as geographical location, stage industry preferences, all this plus instant emailing. This can save time for both investors and entrepreneurs and will certainly decrease the number of embarrassing refusals.