Last month, I wrote about the lies
entrepreneurs tell me
("Cisco wants to be
my strategic partner," "The market is going to $7.2
billion, and we will get 20%."). I received an overwhelming
outpouring from loyal Technology Investor Magazine readers.
This month, I respond with the lies venture capitalists (VCs)
tell entrepreneurs:
Lie 1: "Our
money’s different!" Sure
it is. What I really mean is that you should reject the better
terms from other VCs because we are going to spend a lot of
time helping you. Miss your ship dates, and I will give you
all the help you need ... to find a new job.
Lie 2: "We
are sending in the term sheet, sign it and we are on our way!"
To
where? The term sheet makes you stand still, so we can do
the due diligence we were too lazy to do in the first place.
We will talk to every customer, every supplier, each competitor,
and, in the meantime, you can go suck eggs or pound sand for
30 days so we can figure out how to wiggle out of some of
the terms on the term sheet.
Lie 3: "There
is no need for us to sign a Non-Competition Agreement. No
one in the industry does!" Tell
us your inner-most secrets and we promise ... to never forget
your generosity.
Lie 4: "We
can help you negotiate with the investment bankers."
You
betcha. We owe Goldman big time for the turkey we sold them
last month, and you are the "make good." Besides,
Piper Jaffray gets me all that "Friends and Family"
IPO stock, so our short list is going to be very short.
Lie 5: "We
can help you recruit a world-class board!" Actually
we will get other CEOs that we are backing to sit on yours.
We especially like CEOs who still need our money. But you
can bet they will be independent of our wishes.
Lie 6: "We
should do a ‘D’ round now right before the IPO, just in case!"
In
case you didn’t realize that we are stuffing more money into
your company because we know we can make four times our money
in 90 days, which is a fair return.
Lie 7: "We
want to put our money in Redeemable Participating Preferred,
of course." We
have terms so arcane that all the learned judges on the US
Supreme Court and Albert Einstein collectively couldn’t understand
them. What we mean is that we will put our money in on Monday,
then float a loan for you that pays us back on Thursday, but
keeps our ownership level at the same ridiculously high level
in case you actually make it. If you don’t, we get paid four
times our investment before anyone else does. Got a problem
with that?
Lie 8: "You
will have me on your board, and think of me as a full-time
advisor!" Actually,
I am on 14 boards right now, and I spend half my time looking
for new deals. So you will see me about seven days a year,
unless you put in video conferencing, which means you can
see me juggle two telephone board meetings at the same time.
I will send you my picture, which you can hang over your desk.
It’s by the best photographer in South Boston, and it has
major value — though probably not until I’m dead.
Lie 9: "We
will help you raise your next round at a much higher price
from the corporate investors!"
have more fun screwing over other VCs than we do screwing
you over. Hard to believe, isn’t it?
Lie 10: "I
want you to meet another of our
CEOs. There’s great synergy between the two companies!"
As
bad as you are, they are worse. Either we sell their turkey
off, or we have to take a writedown. So you are elected. Or,
as they say in Silicon Valley, "BOGU" (Bend over,
grease up).
8 TECHNOLOGY
INVESTOR November 2000
