VC Secrets revealed: What do “due diligence” and “data room” mean? Should I meet with an associate or only a partner? How often should I communicate with my VC? And more…

Heidi Roizen
Help Me Heidi


Hello Readers!

I’m ending the year with a grab-bag of VC-related questions and answers. Keep those questions coming to, and happy holidays! — Heidi

Q: I’ve heard that when raising from a VC you should never take a meeting with anyone but a partner, because they are the only ones who can approve an investment. Is that true?

While it is true that ultimately the partners will determine whether an investment is made, it is silly in my opinion to not take the meeting! At most VC shops, there are non-partner members of the team (often with titles like associate, vice president or principal) who are tasked with understanding sectors and sourcing investment opportunities. Because they are usually not saddled with portfolio responsibilities or firm management, they are focused on finding opportunities and championing them through the investment process. At Threshold, our associates and principals participate in all our investment meetings — both pitches and investment decisions — and are encouraged (and expected) to contribute their thoughts. They are fully up to speed on the areas of focus for us at any given time, as well as our internal process, and can often be the best internal champion for a startup given their exclusive focus on new investments. While even early stage investing involves a lot of analytical data, it also involves a lot of relationship-building, and having a VC insider excited about you and what you are doing can help build the needed internal momentum to get to a yes. And one more thing, at least at Threshold, our associates and principals could be our future leaders — in fact most of our partners today came up through those ranks.

Q: What does the length of the first meeting offered mean in terms of how excited the VC is about me?

A: On face value, not much. Most VCs set their own schedules and first meetings are often 30 minutes. Generally when you are close to getting a decision from a firm, the meeting(s) will be longer and there will be more people in the room.

Q: How many meetings would be typical before getting an investment?

A: While the lore is you get a term sheet scribbled on the back of a napkin at Nobu on the first meeting, the reality is far different. I’d say most entrepreneurs have had contact with 30–40 VCs (at least a coffee) before they either get a term sheet or go back to the drawing board. As for how many times you meet with an individual term, see my earlier posts about the VC process.

Q: Do all partners at the firm contribute/help my company or just the one on my board?

The one on your board is usually the person responsible for managing the investment in the eyes of their partners. However, some firms have other partners that specialize in helping companies with specific issues — for example at Threshold we have a Talent Partner and a Marketing Partner. Plus, other partners often get involved when they have special skills or networks relevant to what you are facing, particularly around raising subsequent rounds. My recommendation: get to know more than one partner and get very good at asking for help! Just remember this should always be done respectfully, since the primary relationship is with your board partner.

Q: How often and when should I give my board updates outside of board meetings?

A: So much depends on the stage of your company but for any stage the golden rule for board meetings is NO SURPRISES. Ok, surprises like “the quarter came in at 150% of plan” is acceptable, but “we came in at 50% of plan” is not. As soon as you know something bad, it is best to share it with your board. Trust me, if you build a collaborative relationship with the individuals on your board and have frequent contact, your life will be better and easier through the tough times. And they might even have ideas that will help :) . It is best to build that relationship from day one, trying to build it when you need it is too late. Board management is one of the most valuable new skill sets you need to develop — Brad Feld has written an excellent book on the topic called Startup Boards — highly recommended.

Q: What does “due diligence” actually mean?

A: It varies by firm, but in general the process will include going deep enough to understand your technology, to talk to customers to understand how they really feel about your product, to check references (both given and blind) about you and key members of your team, and if you are farther along, to validate your contracts, financials and intellectual property. When you get a term sheet, its completely fair to ask for a clear picture of the remaining process to funding, including what items will be reviewed during due diligence, and the related expected timeline to funding.

Q: What’s a “data room”?

A: Guess what, it’s not usually a room anymore! It’s just called that because in eras past you’d have a physical room where you’d put printed versions of all your contracts, financials and other relevant data, and the person considering investing in or buying your company would physically go there to look at everything. This was done to ensure confidentiality of the information. A virtual data room is the norm now, but it is for the same purpose — all relevant documentation needed for due diligence is there, but it is access-controlled so that only those who are supposed to see it see it, and records are kept of who does see it.

Q: Why do VCs say they don’t/can’t invest in conflicting/competitive companies?

A: First of all, some do, some don’t. For those who don’t (like Threshold) the answer is pretty simple. Typically we get excited about a sector and then meet lots of startups trying to tackle the problem. We pick the one we believe has the best team and technology to win. We typically invest enough to own about 20% of that company, and from then on we think of ourselves as a supporting player on that team. Since we expect our entire firm (not just the deal partner) to be helpful to the company, it would be pretty hard to back competitors. How would you feel if we were taking your board deck and sharing data with your competitor? How would you feel if we met a potential big customer and suggested your competitor instead of you? Now, sometimes, as companies evolve, they grow to be competitive. If we have two like that in our portfolio, we agree to limit data between the two partners on those respective boards. Sometimes, a VC will invest in a company, it will grow, they will exit, and then subsequently they may invest in a new company that will end up competing with that older company. This I think is reasonable if we no longer have an insider seat at the prior investment. For most firms, making (or not making) competitive investments isn’t a hard law, but more a guideline based on the reality of the close relationship we seek to build with the entrepreneur during the lifetime of our investment.

Q: Why are VC partner meetings on Mondays?

A: Because VCs are skiing or golfing on Fridays? Seriously, the best VCs I know are not in the office a lot, because that’s not where the entrepreneurs are. Since it usually takes about 100 meetings (that is, meet 100 different entrepreneurs) to get to one investment, our investment team is out doing that, not sitting in the office. Because of that, the easiest way we and other firms ensure that we can gather the whole team at least once a week consistently is to pick an in-office day, and somehow that ended up being Monday. But we and others often pull together the team on different days if that is what’s needed to meet the timeline or respond to competitive pressure.

Q: Why are so many VC offices on Sand Hill Road?

A: I have no idea. It is a great location though, near to Stanford and right off 280. Plus we can always go scope out the scene at the Rosewood if we need a break.



Heidi Roizen
Help Me Heidi

Partner at Threshold Ventures, Stanford Educator, Board Member, Mom, dog lover.