An early stage founders guide to working with VCs — Assessment phase: hot or not?

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An early stage founders guide to working with VCs:


Now that you’ve submitted your deck three scenarios are possible:

  1. You quickly receive a “No, we’re not interested”.
  2. You quickly receive a “Thanks, we’re looking at your company”.
  3. You don’t receive any answer.

The 2min TL;DR video

What happens in a VC firm during the assessment phase?

How are deals assessed?

The way deals are evaluated can vary significantly between funds, but very often it looks like:

  1. The founders submit their pitch deck (cold or warm).
  2. An analyst/associate/principal checks whether the deal is in line with the firm’s investment scope and thesis.
  3. If the startup looks promising the VC will start discussing it with the rest of the investment team and will write a deal memo to dive deeper into the opportunity. If it’s not the case they’ll pass directly: “No we’re not interested”.
  4. At that stage, VCs usually have multiple discussions with the founders — calls or meetings — as well as with existing customers or fellow investors.
  5. Once they have enough information, they can decide whether to invest or not. It very often happens during “investment committees”.

I insist again; this is a very general framework, this process can vary widely between funds.

What does accelerate the assessment process? The “Hot or Not” framework

If you have one (or more) of the following items checked, the process described above will happen much faster:

  • A proven team with a great track record — proven entrepreneurs.
  • Outstanding metrics — whether it’s revenue or product metrics.
  • A unique technology or distribution advantage.
  • Other VC firms are ready to invest — VC FOMO or Fear of Missing Out.
  • You got a warm intro.
  • You are in a VC hyped category — Examples: Artificial Intelligence or Blockchain tech at the moment.
  • Your company fits the VC’s investment thesis perfectly.

It’s NOT a checklist to assess the QUALITY OF YOUR COMPANY / PRODUCT. You can check all the boxes and fail at building a great company. Not having any item checked out of this list it simply means that you’ll probably have a harder time convincing investors initially. Not that you can’t build something awesome.

A word on VC FOMO: VCs like to talk to each other and often behave like lemmings. When they see that no one wants to invest in a company, they’ll be very reluctant to do it alone. If suddenly, for the same startup, a great investor decides to put money, the VCs who passed earlier will reconsider their initial decision.

This tactic is used by many founders to capture VCs’ attention: “By the way, I already have some investors ready to invest in my company, you’d better be quick”. I don’t advise founders to do it if it’s a lie as it can backfire badly. Howevern, when true, it’s a good way to accelerate the process.

How long does the assessment process last?

When your deal is 🔥🔥🔥🔥🔥🔥, it can take a few days before you get an answer and receive a Term Sheet — a.k.a the document saying that the investor is interested and wants to invest in your company.

If it’s not the case, the length of the process can vary significantly. From a couple of days if they can take a decision fast, to some weeks or even months if they need to build conviction. It happens that to make a decision, an investor must explore in depth a trend or an industry and spends plenty of time discussing with the founding team and other investors to understand the opportunity.

If it’s your case, be prepared to talk to several people at the same firm (other associates or partners) on multiple occasions. You’ll also be asked to provide more documents than your pitch deck, from more metrics (product, business, financial plan) to market figures (for market sizing) or even customer references.

To conclude on the length of the assessment phase, be also aware that many founders “don’t do their homework” and come unprepared (see post #2). If you contact non-relevant VCs or send a poorly crafted pitch deck, you can expect this phase to last longer.

In a VC firm, who decides if a deal is done or not?

As I’ve explained in the first part of the guide, you have two hierarchy levels in a fund: people who can make an investment decision (Partner level) and people who can’t (analyst, associate & principals).

The way an investment is agreed varies from one fund to another:

  • Some require unanimity from all the partners.
  • Some require just a percentage: for example ⅓ of the Partners need to agree.
  • In some firms, each partner is responsible for his investment decisions.

Now that you have a better overview of how a VC firm assesses a deal and how investment decisions are taken, let’s go back to our three scenarios.

Scenario 1: You quickly receive a “No, we’re not interested”.

Quick = 1 to 15 days after you’ve submitted your deck.

Well, that’s a bit tough but receiving a quick “no” from a VC has a positive side as it means you won’t lose time.

Should I explicitly ask why I got no?

Yes, you should. Good VCs will provide you with their reasons for why they chose not to invest in your company. If it’s not the case it’s legitimate to ask for them, so feel free to do it.

If you think that the reasons they give you are “VC bullshit” then it means that they were just not convinced enough by your founding team, your metrics or the opportunity.

Should I be mad if I get a “no, we’re not interested”?

No. There are plenty stories of highly successful founders who were rejected by VCs at early stage (like Airbnb). A VC doesn’t hold the truth, is not more intelligent or see the future better than you.

Getting a “no, we’re not interested” doesn’t mean that your startup or project is not worth an investment it just means that a particular person or fund was not convinced or that it didn’t fit their investment thesis. If you truly believe in your project, it shouldn’t stop you from continuing.

I received a “No, we’re not interested”, but I really want this investor with me, should I insist?

Insisting too much might hurt your relationship with the VC, so I don’t advise you to insist too much just after you got rejected. A better strategy is to keep the VC informed of your progress. Send her/him a simple update email every couple of months with your updated metrics. That way you’ll build a healthier relationship with him/her, and if you show enough progress, you can land an investment.

Scenario 2: You receive a “We’re looking at your company”.

1 to 15 days after you’ve submitted your deck.

When a VC notifies you that he has received your deck, it means you’ve entered the assessment phase that I’ve covered in the first part of the post.

The duration of the process and the interactions you’ll have with VCs during this process can vary significantly:

  • If your company is “hot”, you’ll probably meet a Partner quickly.
  • If it’s not the case, you’ll probably interact multiple times with associates or principals first.
  • If the investors need to build conviction, they’ll ask you for more material: more metrics, your roadmaps, first users/customers references, market figures.

Whether you are hot or not these first interactions are an excellent opportunity to see how the VC behaves. As you’ll potentially spend a significant amount of time working with him as an investor in your company, it’s vital to validate that you are “compatible” and respect each other as human beings ;-)

The longer this phase last, the more chance there is that the investor has either difficulty convincing himself or the other members of the investment team.

If you finally:

  1. Receive a “yes we want to invest”: then you can check the next article of our guide.
  2. Receive a “No we’re not interested” go back to the first scenario.
  3. Don’t get any answer, proceed to scenario 3.

Scenario 3: You don’t receive any answer

Getting no response from a VC is probably the most frustrating experience for a founder.

There are various reasons why an investor might be slow getting back to you:

  • She/he is not convinced enough and tries to explore the opportunity in more depth.
  • She/he is currently under water and cannot progress on your deck and has other priorities.
  • She/he forgot about you (you fell through the cracks).
  • You submitted your deck “cold” and didn’t follow the instructions on their website.
  • You haven’t done your “homework” and contacted the wrong VC or provided a bad pitch deck.
  • It’s a bad VC who doesn’t care about answering companies which do not interest him.

Whether the investor has a good reason or not to answer, he should at least be transparent and inform you of the timeframe for the next step. A good tip is always to ask the VC to provide you with an estimated date for his next email. It doesn’t need to be very accurate, but at least you should know whether he’ll come back to you within a week or a month.

And if you don’t hear from him, a simple (and nice) email reminder can be useful:

“Hi XXX,

I submitted my deck two weeks ago, and I still haven’t received an update. If it’s possible I would like to know when I can expect more information about the next steps.

Let me know if you need more metrics, market figures or customer references, and I’ll be happy to provide you with more data.

Best regards,

YYY”