Ask PG: How do you tell a VC you're not ready for them yet?

#1

Post by wheels » Sat, Sep 27, 2008, 10:10 PM UTC

This is something we've hit a few times recently. We've had a couple of full-on VCs approach us asking for more info. German VCs tend to want to see a business plan, or at least that's what they always ask for. We're writing one, but for some of our long term goals we've still got some research to do.

So, we're a bit up in the air. The options seem to be:

- Divert resources away from development so that we can finish the business plan faster

- Divert resources away from rounding up customers so that we can finish the business plan faster

- Get a quick and dirty business plan together that ignores a lot of details for things more than a year out

- Tell VCs we're not ready to present to them yet

We're good on money for the next while, so there's no immediate need to start raising money, but this is a point that we debate internally, so I'd be interested in what Paul or others that have been down the fundraising route have to say here. From Paul's essays he emphasizes "keep working on your product", but that seems to be an alternative to proactive fundraising. It's a bit of a conundrum when they've come to us.

Re: Ask PG: How do you tell a VC you're not ready for them yet?

#2

Post by oxyona » Sat, Sep 27, 2008, 10:21 PM UTC

So, you don't need the money but people might want to give you some anyway? That sounds like a great problem to have :)

The worst thing you can do with a VC, or with any potential client or partner, is to give them a bad experience. "Sorry, we don't need any money right now, but we'll keep you in mind," is a great answer. "Here's a half-baked business plan (or product) that even we don't like yet," is always a terrible answer. "Here's a good business plan, but we don't need any money so we're not really excited about proceeding," is pretty bad too.

Just brush them off nicely. Take them to lunch for a chat if you want. Make it clear you're not looking for funding right now, but you might be eventually, and you'd like to get their input right away. Wouldn't you think it was great if a VC did that to you?

Re: Ask PG: How do you tell a VC you're not ready for them yet?

#3

Post by rantfoil » Sat, Sep 27, 2008, 11:08 PM UTC

Just tell them you're not ready to start raising money. Start when you're ready. A professional VC or investor will never fault you for postponing your fundraising process. It's prudent and the right thing to do.

Re: Ask PG: How do you tell a VC you're not ready for them yet?

#4

Post by rms » Sat, Sep 27, 2008, 11:33 PM UTC

Some of the business plan software (I've used Palo Alto Business Plan Pro) makes it easy to make a business plan of arbitrary length. If nothing else it's nice to get the graphs generated for you.

Re: Ask PG: How do you tell a VC you're not ready for them yet?

#5

Post by wheels » Sun, Sep 28, 2008, 12:13 AM UTC

rms wrote: post #4

Some of the business plan software (I've used Palo Alto Business Plan Pro) makes it easy to make a business plan of arbitrary length. If nothing else it's nice to get the graphs generated for you.

We've got a pretty good book on the topic (despite its title: "Business Plan in a Day") but the big issue for us is doing more research on competitors and trying to get an idea of how much we'd need to raise to hit some of our more ambitious goals that kick in at the 2-3 year mark. Just the effort of doing the writing isn't really intimidating.

Re: Ask PG: How do you tell a VC you're not ready for them yet?

#6

Post by anamax » Sun, Sep 28, 2008, 7:19 AM UTC

You could ask other VCs. (VCs love to talk. And, it would help you to talk with them when you don't want money from them.)

Heck - you could ask these VCs what they want. If they ask for something that you don't have, you can ask how producing it moves your biz forward.

It's generally accepted that you shouldn't build technology that won't be needed when it's ready, so why would biz artifacts be any different?

All that said, does your current biz plan satisfy your needs? If it doesn't, how much is that costing you?

Re: Ask PG: How do you tell a VC you're not ready for them yet?

#7

Post by Tichy » Sun, Sep 28, 2008, 12:26 PM UTC

I guess if I was in your situation I would feel the same, but from the outside, it seems a bit weird. Apparently you are doing fine without a business plan, so why let a VC force you to use one? What other things will they force you to do that are not really aligned with your preferences and that will only suck away your energy and time?

Isn't there another option: tell the VCs that sure, you can present to them, but that you don't have a business plan?

Creating a business plan just for them would also be an upfront investment on your part. If no deal goes through, you wasted that effort. Why should you be forced to make that upfront investment at this point?

As I said, I know it is easy to talk...

Re: Ask PG: How do you tell a VC you're not ready for them yet?

#8

Post by trevelyan » Sun, Sep 28, 2008, 10:56 PM UTC

A couple of thoughts:

(1) Ask yourself why they need the business plan? If these people do not already know who you are and how you make money, you shouldn't waste your time running through hoops to explain it to them unless you have a specific agenda at this point. If they need to understand your business invite them to lunch. If they need a document for other purposes anything you write will be ineffective and a waste of your time unless you understand those purposes.

(2) If you have a profitable business with growth, more growth potential and decent press, you will have LOTS of investors interested in you. And if you need VC you should put effort into talking to multiple people at the same time rather than one at a time. The threat of their missing the opportunity you are giving them to make money is what will get you better terms, not anything in a document that will be outdated in a few weeks anyway.

There is a lot of money out there for profitable ventures, and you are hopefully making some directly as well and reducing your need for outside investment on a day-by-day basis.