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Understanding a venture capitalists process

Jane Levesque on August 16, 2012

When pursuing a venture capitalist for an investment, it’s important to understand his or her process.

Ann Winblad, co-founder and a Managing Director of Hummer Winblad Venture Partners, has some advice for entrepreneurs when talking to venture capitalists.

“As an entrepreneur, you need to ask as part of your first meeting, ‘What is the process here? What happens next?’” Winblad says. She advises asking if a decision will be made right away or if your company will be in a stack of decisions that take weeks. You should also ask about their due diligence process. If the venture capitalist can’t tell you their decision-making process, she says, “You probably should go find another venture capitalist. You really will be spending all of your energy during the pitch process and you need to know that there is a route to the money with the venture capitalist that you’re pitching to.”

Winblad says entrepreneurs need to be a bit of a pest after that first meeting. If the venture capitalist has told you he will make a couple of calls in a week or talk things over with his partners by a certain day, he won’t be offended by your followup. “Look at this as a sales process. You just pitched to a customer and you’re trying to close them,” she says. Follow up with an email or a call asking if the venture capitalist talked to his partners yet, or if there are issues that have come up, and ask if there is anything else you can provide.

If the deal stalls, it’s likely a “no,” Winblad says, although you may not hear that word.

“Venture capitalists don’t like the word ‘no’. We like entrepreneurs,” she says. Many venture capitalists just never say “no,” which can leave an entrepreneur wondering what’s next.

“What we tell entrepreneurs is we’re going to give you a quick ‘no’ and a slow ‘yes’,” Winblad says. If they are working on a ‘yes’ answer, they will do due diligence, make sure their partners are behind it and keep the entrepreneur updated.

“Don’t be afraid of the word ‘no.’ You’d rather get a real ‘no’ than a nothing and go on to the next investor,” she says.

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