RTC #37: Why VCs go on radio silence after meeting you

Hi everyone, here is today’s issue at a glance:

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📢 My favorite links of the week

👉 "Today, I'm gonna play big." - $15B investor, Graham Weaver, teaches Stanford students how to live an asymmetric life (Link) - My favorite this week (you gotta have to watch this)

👉 How to manage your startup's cash by Sequoia Capital (Link)

👉 Term Sheets: The ultimate guide for startup founders (Link)

👉 How to make 400x on your early-stage investment (Link)

👉 How to build your seed round pitch deck (Link)

👉 The one trait that 12 out of 13 unicorn founders had in common (Link)

👉 A rebound for retail fintech (Link)

📖 Report of the week

The Rise of European Megafunds

• Faster Fundraising: Megafunds raise capital more frequently.

• Higher Step-Ups: Megafunds see larger valuation increases.

• Stable Performance: Megafunds show slight outperformance with lower fees.

Ghosting is not cool at all and is heavily frustrating.

You had the first or even second meeting with the VC and they showed some genuine, real initial interest.

You run a perfectly structured process and follow up on the potential next steps.

After a week or so you are following up again.

And then…

Why are VCs doing this?

Being guilty of this myself, I’ll share my top reasons today.

The main reason

VCs usually categorize their potential deals in three categories (or even inboxes)

• “Yes”: These are the clear wins. You’ll see VCs fighting to be part of the deal, committing quickly.

• “No”: Out of thesis or clearly not interesting. I try to say "no" to these quickly.

• And then there are the “Almost”…

These are the ones we’re talking about. These deals look promising, have ticked quite a few boxes, and I want to believe in them. However, they haven’t quite risen above the bar yet.

You definitely don’t want to lose the deal, but it still needs further (external) validation since it’s slightly outside your core expertise.

An external validation could be the commitment of a lead investor with this very specific expertise, or feedback from another founder or industry expert.

The problem: this is outside of your control.

The reason (which is not excusable)

Yes, there are some VCs out there who, in my view, are not very professional or organized…or are simply arrogant. They don’t respond because they’re overwhelmed or just don’t see the deal as interesting (until the fundraising dynamics change through a potential new lead or similar and they get FOMO).

This happens quite often, but I believe these are not the investors you want anyway (unless you’re just looking for a cheque and not added value).

Times have changed, and I believe they won’t be able to play this game successfully in the long run. So, let’s not spend more time on them.

And the other reasons

The thing is, every situation is somewhat specific.

The deal characteristics, the VC firm itself, the timing of the deal, etc., lead to a variety of other reasons:

• Overloaded Pipeline: (Especially smaller) VCs can have real capacity issues. This should not happen. But, well, looking at my deal pipeline for the last months, I definitely see some backlog.

• Competing Deals: This is something I experienced myself quite a few times. There is that one deal now (the “yes” or the “almost” that you are finally convinced). The only thing you’re focused on is closing it, leaving no time or focus for other things until it’s done. Did I miss one or two potential deals because of that? Maybe, but I at least made sure to close the ones I wanted.

• Personal Topics: Lastly, you never know what’s happening on the other (personal) side…summer vacation, getting married, personal issues, etc. But these things can impact your deal.

I am guilty myself here.

The one thing I try to avoid is falling into the “arrogant” or “unorganized” categories, but for all the other reasons, I can probably think of a few situations where I’ve “ghosted” on a deal.

What should you do when this happens to you as a founder?

There is one simple rule:

“Do not take it personally, execute your process rigorously.”

If a VC does not agree to the next meeting you try to schedule, doesn’t re-engage…and you’ve already asked nicely 2–3 times, it’s time to move on.

But what if the VC comes back a few weeks later?

Then it is up to you…

Do you feel this investor would bring the right value to your cap table?

If so, schedule the call and proceed as if nothing happened. You never know the specific reasons for the delay in re-engagement.

However, if you believe the “ghosting” revealed some actual (concerning) traits, such as unreliability, or if the investor is only returning because your traction has improved…driven by FOMO…

👉 Then it might be time to move this one into your “no” inbox.

More insights on “investor ghosting”? 👻

➡️ Responding but scamming: 13 ways to scam a founder raising funds (even worse)

➡️ Why investors are not responding to your startup pitch (Forbes)

➡️ The Top 5 VC firms that absolutely do not want to hear from you (and will not reply)

➡️ Check out this episode from the TechCrunch Podcast (“Equity”)

💬 Venture Capital Terms (you need to know)

Ratchet
👉 Ratchets protect early investors from dilution by subsequent fundraisings at lower entry prices.

In the scenario that a subsequent investor into a company invests at a lower price per share, earlier investors with “full ratchet” protection get a price adjustment to that lower price.

Pro Forma Cap Table
👉 Pro forma cap table is a version of the cap table that shows the updated company ownership after a financing round closes.

For investors, the pro forma cap table is a key diligence document that gives details on ownership, dilution, and more, should the round close.

Pre-Money Valuation
👉 The pre-money valuation is the value of a company excluding its latest round of funding. It refers to how much a company is worth before it receives an investment.

Post-Money Valuation
👉 The post-money valuation is the value of a company including the latest round of funding. It refers to how much a company is worth after it receives an investment.

Pro Rata
👉 With pro rata or participation rights, investors can invest in subsequent funding rounds to maintain their ownership percentage in a company.

Thank you Signature Block for your insights! 

Thank you for reading today’s issue. If you enjoyed it, leave a like or comment, and share it with your friends. Follow me on LinkedIn to never miss updates again.

Have a great week,
Stephan 👋

Issue #37 | 26 August