7 Things I Learned From VCs Who Passed On Me
When I was a founder, we ran a high-velocity fundraising process each time we raised capital. That meant a lot of investor meetings. And a lot of VCs who passed on us.
I learned a lot from those investors — though some of the lessons didn’t become apparent until I was on the other side of the proverbial table.
I’m going to present this week’s post in the style of a list of Friends episodes. (If you’re too young to know what that means, ask your friendly neighborhood AI to explain it 😉.) Here are 7 things I learned from VCs who passed on me:
1. The One with Josh Kopelman
Josh Kopelman was an early investor in Aster Data, the big data company where I was the first employee. After Aster Data was acquired and I left to found DataHero, he spent more hours than I can remember meeting with me and brainstorming about the potential for cloud BI. Each time we met, he asked poignant questions that had a material impact on the trajectory of our company.
On the one hand, Josh was definitely playing the long game and hoping for a potential investment. But it was more than that. I always felt like he was genuinely excited about what we were doing. Even after passing on our Pre-Seed round, Josh continued to make time for me. It always felt like he sincerely wanted us to win.
It was only later that I realized how much of an outlier Josh was in the way he interacted with founders. And it’s influenced how I approach the role of an investor to this day.
The Lesson: The best investors genuinely want to see you win, even if they don’t invest in you.
The Tip: “Pay-it-forward” culture is real. If you encounter an investor who’s willing to offer you their time, don’t be afraid to take advantage of it. Just make sure to pay it forward down the road.
2. The One About the New iPhone
Back when I was a founder, every new iPhone release came with lines around the block of fanboys eager to get their hands on the latest-and-greatest device.
One day, I entered the office of a VC who proudly showed me his brand new iPhone. And then proceeded to stare at it for the duration of our meeting.
I have no doubt that whatever messages he was getting during our meeting were of the utmost importance (were they from the President? or maybe they were from Steve Jobs himself?). Either way, the fact that a VC literally stared at his phone non-stop during a 20-minute pitch meeting made me feel like absolute shit.
It was a complete waste of my time. And I will never, ever forget it.
The Lesson: If an investor isn’t giving you their undivided attention, then they aren’t giving you any attention (and they’re not going to invest).*
The Tip: Don’t be afraid to politely but firmly excuse yourself from a situation when an investor isn’t focused on you (e.g. “It seems that this meeting isn’t a priority for you, so I’m going to give you back your 20 minutes and allow you to focus on what is.").
* Occasionally, a legitimate issue comes up during a pitch meeting. If an investor seems sincere and apologetic in their need to deal with it, try to be understanding.
3. The One With the New Partner
Back when we were raising DataHero’s Seed round, we were in deep diligence with a top tier, multi-billion dollar Silicon Valley firm. The lead partner had an extensive background in our space, understood what we were trying to do, and seemed eager to lead the deal.
What we didn’t realize at the time was that he was brand new to the firm and he had never led a single investment.
We spent weeks in diligence with the firm, including multiple presentations to larger and larger groups of partners. And then one day, the deal just died.
It wasn’t until years later that I found out what actually happened. After the final partner meeting, one of the firm’s senior-most partners asked our champion a straightforward question:
“Do you believe in this company enough to make it your first investment?”
He waffled. And the deal collapsed.
The Lesson: A VC’s tenure with their firm directly impacts their ability (and willingness) to get deals across the line.
The Tip: If a firm “redirects” you to a new partner — even if they’re an expert in your space — ask questions to understand their deal history with the firm and their ability to lead the deal.
(To read more about this situation, check out The Paradox of the Junior VC Partner).
4. The One With the Self-Proclaimed Expert
Ok, this wasn’t just one. It was many. In fact, I’m pretty sure every founder has had this experience multiple times.
You’re five minutes into a pitch with a VC when all of a sudden they turn around and start mansplaining to you exactly what you’re doing wrong and how to fix it.
To the self-proclaimed expert, every startup is a nail and they’re the only hammer to save-the-day. There’s the go-to-market expert, who will tell you how to fix your sales strategy despite having no experience in your industry. The product expert, who will tell you the one tweak that will magically fix your churn because it worked for him 20 year ago (also, he’s never actually tried your product). And don’t forget the marketing expert, to whom everything is just a matter of “positioning”.
(Note: the self-proclaimed expert is different from a run-of-the-mill opinionated VC — of which there are many — in that they always seem to circle back to one specific topic, regardless of what you’re actually talking about.)
The Lesson: As in every industry, there are some investors who just need to be the smartest person in the room.
The Tip: Learn to smile and nod? I dunno…I never really figured this one out.
5. The One About the CVCs
Prior to DataHero, my knowledge of corporate venture capital firms (“CVCs”) was limited. I knew that a lot of tech companies had venture capital arms, but I didn’t really understand how or why they differed from regular VCs.
In those days, Intel Capital, Google Ventures and Salesforce Ventures were three of the CVCs that were most widely respected amongst founders and I had the opportunity to pitch all of them. In each case, my interactions were strongly positive. The partners were extremely well-informed with an understanding of the market that exceeded that of many other VCs I met. But in each case, a topic of conversation arose that did not come up with traditional VCs: synergy.
Some CVCs had very direct requirements. For example, Igor Taber of Intel Capital had a single question: how would DataHero’s success help Intel sell more processors? (It wouldn’t)
In Salesforce’s case, Villi Iltchev wanted to understand how we envisioned DataHero fitting into their portfolio of offerings (given that we thought their reporting product was atrocious and wanted to replace it, I didn’t have a great answer).
Ultimately, our vision wasn’t closely enough aligned with the strategic objectives of any of the CVCs that we pitched, so none of those conversations went far.
The Lesson: CVCs are looking for strategic alignment on top of (and in some cases, instead of) financial benefit from their investments.
The Tip: Ask corporate VCs what strategic objectives they’re trying to satisfy and what needs to be true in order for them to invest.
6. The One With the Industry Luminary
One of the investors I met with while fundraising for DataHero’s Pre-Seed round was a genuine luminary in the database space. He had co-founded an incredibly successful company before becoming a prolific early-stage investor. His understanding of both technology and business were second-to-none. So why did he pass?
His company — like many others of the big data era — was built on the premise that all of the data in a company should be collocated in a single data warehouse. What we were proposing with DataHero went directly against that premise. We believed that data would be distributed across the cloud services companies were increasingly adopting. Not only that, we also believed that an increasing amount of data analysis would be performed without the traditional data warehouse team involved.
This conflict meant that the only way for DataHero to succeed would be if the premise upon which the investor had built a successful 20-year career no longer held.
Despite multiple engaging and intellectually stimulating conversations, the luminary remained rooted in his view of the world and passed on DataHero.
The Lesson: A VC is unlikely to invest if a fundamental premise of your startup goes against a belief that they hold strongly.
The Tip: Qualify potential investors by testing their openness to the future state that you envision (e.g. “We believe that the future will involve X. What do you think of that?”)
7. The One About Everyone Else Who Passed
Whenever a VC passed on DataHero with an explanation along the lines of, “it’s not a fit for us,” I struggled to accept their reasoning at face value. After all, shouldn’t a good VC want to invest in a stellar business no matter what?
Now that I’m on the other side of the table, I understand how wrong that line of thinking is.
In many cases, a company just isn’t a fit. It might not be a fit for the firm’s thesis, it might contradict the partner’s lived experiences or the partner might realize that, given the dynamics of their firm, it’s unlikely that the deal will get approved.
After nearly 10 years as an investor, I understand the degree to which, “it’s not you, it’s me,” really is a thing when it comes to VCs.
The Lesson: Sometimes (s)he’s just not that into you.
The Tip: Fundraising is a numbers game. By filling your fundraising funnel with a sufficient number of qualified target investors, you put yourself in the best position to succeed even when many investors pass for reasons that aren’t entirely clear to you.