Vaporizing VC Interest

November 12, 2013

Nearly every week, I receive an email from one of our portfolio founders that reads something like: “Hey, Eric, great news! We just got out of a meeting with Dave from AwesomeVC and he loves what we’re doing. I have a good feeling he’s going to lead our Series A round.”

Not long after, a few more superenthusiastic emails follow about the high probability that other VCs are also very interested and how the founder expects to wrap up the round quickly and painlessly.

Then the balloon deflates. One by one, the VCs pass on the round, and the founder has to break the news to the co-founders, employees, and existing investors. He’s completely dejected, his team is now concerned about running out of money, and his initial investors fear they may have funded a dud. How could he have been so wrong about the interest level of the VCs? They seemed genuinely excited; what went wrong?


The problem is that venture capitalists often give off signals that are inconsistent with the real probabilities of their actually making an investment. Venture capitalists are not just buyers of companies; they’re also sellers of capital–meaning that because the best deals are competitive, investors use enthusiasm to increase their chances of winning (should they ultimately decide to invest). That’s not to say their enthusiasm isn’t genuine; it just doesn’t necessarily reflect their likelihood of investing.

Every VC is different, but here’s a breakdown of a few steps in the investment process to illustrate how a founder’s expectation of closing a deal differs from that of a VC’s. This is far from a scientific analysis, just a general sense of the numbers from my experience.

The VC Invites You to Pitch
Likelihood You’ll Get Funded:
In your mind-10% In reality-<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 Meeting
Likelihood 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 Meeting
Likelihood 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 Sheet
Likelihood 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.

Why does any of this matter? Raising money is like any other sales process, only the
consequences of failure are usually much more significant. Qualify your prospects accurately, make contingency plans, and don’t appear naive by overestimating the odds of a close. Once the deal is done, then you can celebrate.

A version of this post was originally published on


22 Responses to “Vaporizing VC Interest”

  1. That’s a great breakdown. Have you read Paul Graham’s piece

    It echoes the section “Hear no till you hear yes.” Nice work.

    • epaley Says:

      I should have referenced Paul’s piece, which was terrific and very much resonated with me. I think “hear no until you hear yes” is a great motto for this process. Most founders fall into the trap of hearing yes everywhere until they hear no, which causes all kinds of unintended consequences.

  2. Adam Fraser Says:

    Enlightening read, Eric. Good stuff.

  3. Kind of like the probability of a drug going to phase I, phase II, phase III, and getting approval.

  4. I am glad that someone finally had the courage to tell us how it really is. Thanks Eric!

  5. Great piece, Eric. Probably aligns with our experience — we just announced our DJF-led Series A today. . .

    We had an advantage, though . . . we’re a team of former road warriors (and a couple of recovering CRM professionals like myself) building sales tools to help salespeople sell.

    So, ‘hear no til you hear yes’ is sort of second nature to most folks experienced with complex sales.

    But, the percentages in the second and third VC meeting are still counter-intuitively low. Thanks!


    (If you’re a salesperson, sales leader or sales ops type, come check Selligy out. We’ll save your salespeople time and hassle, and give your whole team more data about what’s working in the field. )

  6. Great outline. I did a case study analysis a few years back on how many pitches it took to land a $1M seed round. In that case, 132, and a conversion of about 10%.

    The reason that I bring it up is that this analysis is still requested in sessions with accelerators, founders, etc, and the most useful effects, I think, are:

    a) Making sure founders know the numbers of investors they’ll have to hit to realistically raise.
    b) Having them mentally/emotionally prepare for a long slog and de-personlizing what is often a numbers game.
    c) Having them mentally/emotionally prepare for rejection as default (“You’re converting 15% of pitches to funds? That’s actually great! Nice work.” – not what they would have guessed before seeing the numbers in reality.)

    The same definitely applies, in lower numbers, at an A round. I think your outline above would have similar effects. Pretty helpful. Thanks for writing it.


  7. Ben Carcio Says:

    Good piece, but I’m not sure start-ups need anymore cold water being poured on their prospects of funding. We know, or will quickly learn, that investment is unlikely.

    A meeting is better than no meeting. So get excited and be positive, but be realistic. Heck, going on a first date can be exciting, even if the odds of getting laid or meeting your soul mate are low. – BC

    • epaley Says:

      Ben – Thanks for the comment, but I respectfully disagree. I see lots of companies making decisions and tradeoffs based on false assumptions about the probability of closing an investor. Being very realistic (agree with that word from your comment) turns out to be very important when building your business as you’re making these decisions. Overestimating chances of closing can put a company in serious danger at stages where a startup needs to consider potential alternatives. Realistic probabilities also inform the need to have enough options in the funnel given the chances of success.

      • Ben Carcio Says:

        Eric, I agree. My comment related to how the majority of your post outlined how unlikely VC investment is, and my main point was that most get (or will) get that. The two more valuable parts of your post that deserve deeper exploration are, one, how to communicate with your team/co-founders on the investment process, and two, what are the plan Bs in the event that follow-on investment does not happen. Maybe there’s a part II? I’d be interested in reading it. Regards, BC

  8. Nagesh Says:

    Fully agree Eric.

    Getting a meeting is merely a first level knowledge transfer to the VCs. Assimilating knowledge rapidly on a multitude of topics and industries is a privilege bestowed on the VC community.

    I would say a second meeting with additional (technical and/or business diligence would be further progress down the flow chart. VC synch up with target customers can also be considered progress.

    Ben Carcio, WRT communicating to the team, it bodes well to communicate “No” until the startup sees the funding check. Just like Paul Graham states. Currently, in the middle of raising seed money while drinking our own cool aid. Optimistic attitude helps,but we still are establishing timelines for fund raising.

    On the question of timelines for fund raising, what is a realistic process? Three to four months for high-tech companies?


    • epaley Says:

      Timeline would make for a great blog topic. I’d say that if a company is buttoned up and a really attractive funding candidate – the start of the process to closing could be as little as six weeks. Unfortunately, it rarely goes that way. Usually startups need to iterate throughout the process and bring more and more investors into the funnel with an improved pitch. Lots of companies that start off with rejection get to yes with someone by the end of the process, but sometimes this takes as much as six months and meeting with 40+ different investor groups.

  9. Osman (Ozzie) Says:

    Great piece. Having been on both sides of pitches though, I’d just want to add that from the entrepreneur’s perspective, there’s a bit of a temptation to exaggerate VC interest when speaking to other VCs.

    For instance, if I think VC A and VC B are both on the fence, I might be tempted to try to get them both on board by telling VC A that B is in and telling B that A is in. This becomes easier if the VCs are using the “I’ll pretend to be more interested than I am” approach, because in that case when I say that “VC A said they are interested” I’m not lying.

    • epaley Says:

      This can be very dangerous territory for a founder. I wouldn’t suggest claiming any particular investor is excited about your company to another investor. There is a high probability that they connect with each other to find out whether it makes sense to collaborate on the deal and they may actually dissuade each other from doing the deal. Additionally, they will likely undermine your credibility when they realize that neither investor is as far along as you suggested.

  10. Sean Says:

    And this is why VCs are going to get sidelined by crowd-funding systems: “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.”

    The market dynamics of VCs will fail. Today they are protected by SEC rules and inability to find significant capital elsewhere.

  11. I remember the first time I got a call from a VC associate in 2000. What a ride…

  12. Reblogged this on The Art of Growing High-Tech Ventures and commented:
    Note from Paul: “Hear no till you hear yes.” This is a realistic way to gauge progress in your VC fundraising efforts.

  13. […] Eric Paley of Founder Collective describes how/why an investor’s interest can fade […]

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