I have come across many entrepreneurs who get excited after a meeting with a Venture Capitalists(VC). Most of the time they will tell me that the VC is interested in their venture and there is a good chance that the VC will invest. Most of the times the VCs end up not investing. I usually discount such feedback from entrepreneurs because really, if the VC let you out of the meeting without even talking about a term sheet they are probably not very excited about your company. And even if they sign a term sheet, I would think the deal is only partially possible.
So be prepared that whenever you go away from a meeting with a VC and you feel the VC is interested, treat that feeling as an over optimistic feeling. It’s better to moderate your expectations than to be disappointed later. In fact it is also a matter of strategy from the VC’s side that it’s best not to give you a direct rejection if you meet some basic criteria of their investment, but they are not really keen to invest. From the VC’s perspective, it is best to keep the deal warm, in case new developments make the venture a lot more interesting and they then get more excited to want to invest. The problem with this for the entrepreneur is that you may get misled and lose opportunities to deal with other VCs who might be more likely to invest in your company.
In fact some VCs might even make things look better by signing an “option to invest later” agreement with the company. Be careful about such agreements as it works to the VCs advantage, as they might decide not to invest later and the existence of such agreements may put off other potential VC’s. Such option agreements are like “kicking the can a little further the road”, i.e. just delaying the real decision which is not in the company’s interest.
In some cases, there are VCs who may give you a very negative feedback about your proposal and this might offend you. When faced with such a situation, remember there are two possible reasons for such a reaction. One is that the VC is not really interested and finds your business case not good enough for an investment. In such a case, it’s best not to argue too much and take it as a learning opportunity to take all the feedback back and work on improving your plans for the next round. The other reason could be that the VC is using it as a tactic to make you feel bad with the view to cut your valuation for their investment. So make your judgment carefully about which of these two reasons the VC is giving you the negative feedback for. One thing to note is that if the VC just stops being interested to discuss more details, likely he or she is not really keen, but if he or she still dwells deeper after making you feel bad, then there is a chance they are keen, but want to cut you down to the size they are comfortable with.