How to Speak the Language of Venture Capital
As a young entrepreneur, you may have convinced yourself (or been given advice) that you should raise money. The wisdom of that move aside, when attempting to raise a giant pile of cash to make your dream a reality, it's important to know that you will be entering a new world, where the natives speak a language that sounds like English but most certainly isn’t.
You’ll be talking VC and Angels speak. Here’s a translation:
Dry Powder -- Translation, "Money to invest"
A dirty little secret is that VCs leave their doors open, continue to talk to entrepreneurs, and act like they can (and will) still invest in you well after they have allocated all of the money in their current fund to companies and follow-on funding.
Term Sheet -- Translation, "Yes"
This is what you want -- the Holy Grail, as they say. A written offer to give you a pile of money in exchange for most of your company, your first-born child and your left kidney. I'm kidding about the first-born child part, of course.
Due Diligence -- Translation, "Wait"
Investors need to research you and your company before they can give you a pile of money. Doing anything else would be irresponsible. That is true, but due diligence is also a perfect stalling tactic when they don’t think you can do what you say you are going to do, but just in case they are wrong, they want to keep you around.
Hit-by-Bus -- Translation, "No"
It would be silly for a VC to give a startup money if the founder being hit by a bus would result in that money disappearing forever, right? This logic, which entrepreneurs don’t challenge, is a nice way of saying, "you’re so awesome, but I can’t give you money."
No Team -- Translation, "No"
In reality, a LOT of startups that they're invested in are one-man shows where the founder is knee-deep in some critical area. This objection is sometimes masked behind talk of you needing to grow a broader team.
Bootstrap -- Translation, "No"
Also appearing as "You don’t need an investment to pursue this idea," bootstrapping is building a business without raising money. They may be serious, but it is just as likely they have no dry powder or have a problem with your track record, tea, or traction.
Track Record -- Translation, "It's not me, it's you"
Your history matters. Instead of saying, "You’ve never done anything that makes me think you’d know what to do with my money if I gave it to you," investors say things like, "We look for teams with a little bit more of an established track record."
Instead of "Go do this with your own money," they say, "You can bootstrap this and establish an excellent track record for your next idea."
Traction -- Translation, "No"
If you don't have traction, then you don't have customers. Without customers, how do they know your business idea will catch on?
Investable -- Translation, "No"
This basically means they don't deem you as worthy of their investment yet.
Path-to-revenue -- Translation, "No"
If you don't already have traction, perhaps you at least have a couple of realistic potential clients -- a.k.a. a path to revenue -- waiting in the wings.
Sales -- Translation, "No"
If you don't have sales, see the aforementioned note on traction.
Too Early -- Translation, "No"
If you're too far out ahead of the market, you may hear this phrase: “You’re just too early for us."
In the end, these terms are catch-alls for all kinds of issues that they probably won’t share with you. They may not have any dry powder. One of their partners may always veto ideas like yours. You may be in a sin industry. One of their investors may be the business that your idea would put out of business. They may say it has to do with your traction or your team and, it might be, but the bottom line is that a term sheet isn’t coming.
Don’t despair. VC’s and angels truly do want to find good ideas to invest in. Some of their "NOs" really are good advice for what you should do next. Just because you got what translates as a "NO" doesn’t mean you shouldn’t follow up with them in the coming months, but it does mean you need to get more meetings with other VCs and angels that will be more willing to get you to a term sheet faster.
Have we missed any VC or angel lingo startups might hear? Let us know which ones and what they mean in the comments below.