Vaporizing VC Interest | Anything's Possible by Eric Paley
Mark Winger stashed this in Funding
Insight for going to VC's for funding. Important to plan for or be careful of setting expectations with your team.
What I love about this article is how he really breaks down the percentages of chances correctly.
These numbers are pretty much spot-on:
The VC Invites You to PitchLikelihood You’ll Get Funded: In your mind: 10% In reality: under 1%
Most VCs take a few hundred meetings a year and fund one to three investments a year. Founders typically get in the door with a strong personal introduction from a mutual contact, which can lead to the assumption of real interest from the VC. Don’t get excited about getting a meeting; VCs are paid to listen to you pitch.
The VC Invites You to a Second MeetingLikelihood You’ll Get Funded: In your mind: 50% In reality: 10%
Being invited back happens right away, and it can make you feel that momentum is building. Unfortunately, I’d estimate that the typical VC quickly invites back 20 to 40 companies a year after a great first meeting.
The VC Invites You to a Partner MeetingLikelihood You’ll Get Funded: In your mind: 90% In reality: 50%
After multiple meetings and due diligence, a VC will often invite you to pitch the partnership. Although some firms really do rubber stamp investments at partner meetings, I’d estimate that about half of these investment discussions vaporize at this point. Frequently, the partner leading the deal loses enthusiasm after facing the crucible of his colleagues.
The VC Offers You a Term SheetLikelihood You’ll Get Funded: In your mind: 100% In reality: 90%
This is often the most painful disconnect between founders and investors. Most founders consider a term sheet to be a 100 percent guarantee of financing. Unfortunately, my experience is that 1 in 10 term sheets self-destructs. When the term sheet comes, you shouldn’t take closing for granted.
In my experience these numbers are spot on.
And yeah, never get excited about getting a meeting with a venture capitalist.
They get paid to take meetings.
Good point Adam!
I posted to bring awareness to raising capital in general as I have experienced similar and misleading time lines and interests.
Raising capital and VC funding I would estimate 6 months to a year. I've experienced short-term capital raises drag on a month after commitments.
I've been at those last two spots a couple of times. I've even been at the spot afterwards:
The VC put seed money in your bank account with a pre-negotiated series-A check in escrow:
Likelihood you'll see the series-A check:
In your mind: 100%
In reality: 90%
But I've seen even worse.
I've had VC's demand to be cashed out A YEAR AFTER their money bought stock.
Ouch ouch ouch.
Mark, you're right. 6 months to a year is unfortunately the norm these days.
How I miss the days when it wasn't so.