Aug 1 2011 by Brad

Morgan: Why Entrepreneurs Should Never Meet VC’s Unless They’re Formally Pitching

Today’s VC Post of the Day is from Allen Morgan (Idealab, Mayfield) and is titled Why Entrepreneurs Should Never Meet VC’s Unless They’re Formally Pitching. In it, Allen explains – well – why entrepreneurs should never meet VCs unless they’re formally pitching. It stands out in direct contrast to a recent post from Mark Suster titled Invest in Lines, not Dots in which Mark strongly recommends the opposite – meet with your potential investors regularly in advance of actually fundraising.

So, what should an entrepreneur do? Both Allen and Mark justify their positions well, although in the comments Allen says his advice is entrepreneur centric and Mark’s is VC centric. Allen also suggests that the benefits of meeting with a VC pre-fundraising may outweigh the costs:

“For a great VC like Mark, the costs may (just may) outweigh the benefits. If you have a hot deal, however, Mark will behave like any other smart, rational investor and react only to competitive pressures.”

I’m going to strongly agree with Mark and respectfully disagree with Allen. While I think his comments apply to some VCs, I don’t think they apply to all VCs. Early on in Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist we encourage entrepreneurs not to think of VCs as single type as there are many different styles and behaviors. So, if Allen’s title had been “Why Entrepreneurs Should Never Meet Some VCs …” I’d strongly agree with him.

Both Allen’s post and Mark’s post are well worth reading carefully if you are an entrepreneur considering raising money and trying to decide whether to spend any time with VCs in advance of starting a formal fundraising process. But recognize that some assertions don’t apply. For example, Allen states:

“And, finally, no self-respecting VC will make a pre-emptive offer (even to get a deal early) if he thinks that he’s got the inside track on a deal. … No entrepreneur ever got a VC to substantially increase his initial offer merely by presenting more data (even great, persuasive data), showing why the startup should be valued higher. “

Well, either at Foundry Group we aren’t self-respecting VCs or Allen is wrong, as we make pre-emptive offers all the time and will negotiate on price regardless of external competition. And many of the companies we invest in are ones that we’ve had a relationship with for a long time. We also find ourselves extremely bored by formal pitches as our first or early interaction. If an entrepreneur shows up, says “hi, I have a hot deal with a bunch of folks bidding on it, do you want to see my formal pitch” we often say “no thanks, we aren’t the right guys for you.”

The bottom line – that both Allen and Mark put forth – is know your the motivations of the potential VC you are talking to well. And, if you believe, like we do that there are many different types of VCs, adapt your behavior accordingly.