The Three Types of Lies VCs Tell You to Help Them Sleep at Night (1/3)
Like it or not, venture capital at its core is a sales job. This framework forms the key pillar of understanding that one needs to know why VCs tell lies. In sales jobs, oftentimes it is more about how likeable you are, and how good of a relationship you have with the client, instead of the price you’re selling at or even what you happen to be selling. VCs sell their brands to LPs, and they sell their value adds to firms, and brands are quickly tarnished by people who don’t like you. The convenient exit is often to lie, bend the truth, or commit a lie of omission to be as likeable as possible.
Today, in the first part of our series on the lies that VCs tell, we’re going to cover white lies.
The lies that are rooted in kindness.
From what I’ve seen in my career, there’s only one real type of lies that’s truly a white lie, and these are the lies that VCs tell founders when passing on companies. Nowadays when I say some of the vague generalisms they’re usually true, but when I started out in venture, oftentimes these were convenient lies to avoid hard conversations, and to avoid hurting people (which might in-turn hurt their reputation).
I’ll go through some of the common ones I used early in my career. These might sound familiar. “Your company is out of thesis for our fund” maybe “you’re too early for where we like to play” or “your valuation is outside our typical strike zone.”
Sometimes, these are going to be true.
But most of the time these are a convenient way for a VC to skirt around the truth. See, nobody wants to hear that their baby is ugly. But there are lots of ugly babies. That doesn’t mean that these babies don’t grow up into beautiful people someday down the line, but not everyone will see that at first. As VCs we’re punished more for making a bad choice than missing something, so if anything feels off it’s easier to give a vague pass. When I started in venture, my partner at the time used to give direct feedback and end emails with “we hope you prove us wrong, we’re wrong about these things a lot.” Yes, you will get pushback for that approach, I think we can and should fix these lies and give real feedback about our observed weaknesses in business models and market approaches.
Where these lies become tricky though, and why they’re hard to get away from, is that oftentimes VCs pass on companies because of the founder. These are the only times I don’t know how to give honest feedback. At preseed/seed stage, founder-VC fit matters so much that a majority of the passes you’ll see are because you just couldn’t get excited about working with someone for the next ten years. There’s not an easy way to say that, especially after only a 30-minute call.
To founders,
the best advice I can give is advice the people often give when dating: “If they wanted to, they would.” You can always ask for more feedback, but also sometimes it’s better to just let it go even when you know that someone is telling you a white lie. VCs are wrong all the time. At least in the modern market with so much available capital, most theses are flexible, most check sizes can be increased, and it is extremely rare that something is actually too early to fund. If they wanted to, they would. If a pass feels extremely vague, it was likely you or how you pitched the company, or the VC just didn’t want to put in the effort to type out the truth.
The prevalence of white lies keeps our industry from progressing. What I would argue to my friends reading this is that no matter how hard these conversations are, the industry will be a better, more efficient, and more productive place to thrive if VCs start giving real feedback. I’ve been trying to work on this myself, especially for processes that we dive deep on I think it’s the least we can do to give founders a quick call and tell them the real reason we’re passing. I strive to do that and provide quick feedback in emails when applicable.
That being said, honestly I still haven’t found a good way to tell someone that I’m passing on their company because of them. I’ve been looking, and I’m not sure there is a good way. And in those occasions, I am just as guilty of little white lies as my peers.
I hope someday that this too will change.
