Saying the quiet part out loud
They aren't 'secrets', but there are some things you need to know about the VC process.
There's a lot that VCs won't tell you, not because they are 'secrets' per se, but it's rare that anyone will actually say some things out loud. In my experience, it is all part of the ‘mystique’ of VC-land. VC is pretty opaque, and this suits most firms quite well. The less that founders understand about the industry, the more control firms have over it!
So what’s the “quiet part”?
Most VC’s don’t invest early… but they love to meet early
Perhaps the word ‘venture’ implies early-stage investing, or maybe it’s that venture firms actually did invest early ‘back in the day’. More likely, it's just poor nomenclature... "venture", to most people, implies "early."
Whatever the reason, the fact is that most VC firms do not invest in early rounds. It can feel a bit misleading, to be honest; if you look at their websites, or do some research on various databases (Pitchbook, Crunchbase, ZoomInfo, LinkedIn or Unicorn’s Nest, etc.) it all looks good: “We invest in early stage companies, blah, blah, blah.”
Only, most of them don’t.
Most VCs have a pretty strong incentive to say that they invest early so they can gain access to & track the progress of startups. It’s basically an intelligence exercise (though if you were being cynical you’d say it is just a bait-and-switch tactic).
That said, there are genuine early-stage VC investors out there. Some have been known to invest in pre-rev and even pre-product companies. But this is a situation where the exception proves the rule: most of those investments are going to founders they’ve backed (successfully) before.
It’s also important to remember that, as VC funds have raised more and more money, they are finding that it’s challenging to deploy so much cash and manage risk effectively. In other words, pressure from their investors to provide returns makes them more risk averse and therefore more likely to ‘follow the herd’ by investing in category leaders and/or proven founders. (Note: In the current economic climate, most VCs and PEs seem to be focused on saving their past investments rather than looking for new ones.)
Design matters, so invest in it early
Polished design really does make a difference. A great website, a polished deck and other collateral, a professionally designed logo and brand image is actually super important. The reason is, if you come across as an amateur, VC’s will assume just that: they are dealing with an amateur.
At the early stages of a relationship, VC’s don’t have much to go on as they fill in their mental (and actual) checklists. Every interaction goes into a “Pro” or “Con” column, and we all know that early impressions matter a lot. The better you can come across in the early stages, the better your chances.
That said, amazing materials and a flawless website won’t win their backing, but a polished appearance that doesn’t break the bank can only help.
Don't bet the house on their feedback
Take it all with a grain of salt, but understand that a lot of the feedback you get from VCs is going to be pretty generic and probably not customized for your company or situation.
There are a lot of reasons for this: First, they simply may not be interested in you and your team. In this case, they simply can’t be bothered to provide meaningful feedback since they’ve got 100 other decks to review and evaluate today.
There are basically two other reasons that their feedback may not be all that great: They may not know enough about your company/sector/business model to provide any meaningful input. And you (as the founder) may not be asking the right questions.
While you can’t do anything about the first two reasons, you can learn to ask the right questions. This means that you have to be brutally honest with yourself and be willing to receive brutally honest feedback. If you learn to ask better questions, you are likely to get better (or at least useful) feedback.
Good VCs won’t share your deck... but your information still circulates quickly
Let’s be clear: Regardless of whether you have an NDA or not, VCs will not share your deck outside their organization. If they did – and especially if they made a practice of doing so – they’d lose credibility and nobody would want to work with them. Syndicated deals and being brought into co-investment opportunities are a core part of their business model. If nobody trusts them, they won’t be in business for long.
That said, it is actually a small community where everybody knows everyone else, and people talk. VC-land is a very tightly knit community, and information moves quickly. Additionally, VCs are people too, and like us, they need (or even crave) validation. So don’t be surprised if a VC has already heard about you.
If you’ve read this far, you’ll know that these really aren’t ‘secrets’. But hopefully, it’ll provide some guidelines for you in your interaction with VCs and other capital sources. A great, super-reliable resource for learning more about the VC industry is the nextview blog – great stuff, always honest, always topical. (The fact is, I cribbed these ideas from them, so credit to them!).