Friday, January 20, 2006

The Top Ten Lies of Venture Capitalists

Guy Kawasaki, the evangelist of Silicon Valley, is back. In his fascinating new blog, he reveals The Top 10 lies venture capitalists tell.

Guy is always trying to break down the communication barriers that separate entrepreneurs and VCs. As always, his work makes for amusing and valuable reading. Here's a condensed version.

Lie No. 1: “I liked your company, but my partners didn't.” This is a cop out, says Kawasaki: “A true believer would get it done.’

2. “If you get a lead [investor], we will follow.” In other words, once the entrepreneur doesn't need the money, the VC would be happy to give him some more.

3. “Show us some traction, and we'll invest.” The VC is saying she doesn't believe your story – but she doesn’t want to say No because she might be wrong and doesn't want to end up looking stupid.

4. “We love to co-invest with other venture capitalists.” What entrepreneurs want to hear is, “We want the whole round. We don't want any other investors.”

5. “We're investing in your team.” What the VC is saying is, “We're investing in your team as long as things are going well, but if they go bad we will fire your ass because no one is indispensable.”

6. “I have lots of bandwidth to dedicate to your company.” Counting board meetings, assume that a VC will spend no more than five to ten hours a month on your company. Deal with it. And make board meetings short!

7. “This is a vanilla term sheet.” Do you think corporate finance attorneys are paid $400/hour to push plain-vanilla term sheets? (If you insist on charaterizing term sheets as ice cream flavors, the only flavor that works is Rocky Road.) This is why you need your own $400/hour attorney.

8. “We can open up doors for you at our client companies.” Frankly, a VC might be hated by the client company. The worst thing in the world may be a referral from him.

9. “We like early-stage investing.” Venture capitalists are remarkably risk-averse, considering it's not even our money.

There is no No. 10. “I'm at a Starbucks in Hawaii writing this blog. I've been at it for ninety minutes. I don't have my charger with me. My PowerBook is out of gas.” Deal with it.
Or read the original (with the accompanying comments) here.

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