“It’s the weirdest thing,” confided an entrepreneur to me the other day. “Talk about role reversal: when I was raising my series A, the VCs were so negative and pessimistic that I had to exert every ounce of optimism in me to overcome their objections and convince them to invest. But now that we closed the round, successfully launched the company and they’re on the inside sitting on my board, they are the over-the-top optimists and I find myself, as the one slogging through the hard details of building the business, I am suddenly the pessimist!”
It is an odd phenomenon I have observed. VCs love to shoot holes in other people’s projects and plans, particularly during the due diligence phase of evaluating a project where the exercise is to identify all the major risks and scrutinize every one of the entrepreneur’s lofty claims, finding all the points of weakness and using them as rationale to either walk away or beat down price in the deal negotiations.
But once a VC has invested in a company, they suddenly go native. When speaking about one of their own “babies”, they can often be the biggest promoters on the planet. At times, they are even more over the top than their entrepreneurs. How many press release or article quotes in financings contain the effusive “this could be a billion dollar company” description from the lead VC? Or how brilliant the entrepreneur is that they’ve just backed?
You will never hear them confide in a cocktail party conversation that, "this company is a dog"? Or hear them describe one of their entrepreneurs as simply weak? Instead, ask any VC how they’re portfolio is doing and you’ll likely get the common refrain: “Somewhere between strong and very strong”. They are either being promotional, or they really believe it. After all, everything looks better from 30,000 feet.
On the other side of the table, the entrepreneur who is slogging through the start-up muck sees all the warts. During the fundraising process, they spend hours upon hours covering up these blemishes. But once the VC is in the tent and on the other side of the table, the entrepreneur exposes everything. And then the tension can begin, because the entrepreneur is the one on the hot seat dealing with all the problems – sweating out each quarter, each product release, each competitive move. They can often get frustrated when the VC glosses over the issues and dismisses them with a glib comment at the end of a board meeting – and see you next quarter. And so, their positions switch – the VC morphs into the optimist and the entrepreneur morphs into the pessimist. So next time your local VC is raving about their latest portfolio company, before you jump to any conclusions, remind yourself to check in with the entrepreneur – you may get a very different picture.
They’re predisposed to the billion dollar moonshot even though there’s so few companies that will go that high. It’s a strange criterion to load an evaluation with.
Ah, but such a fine line to walk. While you try to bring the investors back to earth, you’re still working to convince your team, spouse, and yourself that this is a billion-dollar moonshot.