VC Cliché of the Week

There is one thing I know for sure about raising money from investors. If you don't want the investor's money, they will want to invest even more. It is a sure thing.

Lately I've been taking a lot of meetings with entrepreneurs I've known for years, many of whom are starting companies again after taking some time off. They call me up, and ask to come in and get some advice from me, but tell me they don't need money.  I take the meeting, they lay out what they are doing, I give them some advice, then we break. Never once do they ask for money.

It's a great strategy because the best way to raise money is to ask for advice and the best way to get advice is to ask for money. It's human nature to want what you can't have and to not want what you can have.

So why do I take all these meetings when its just an exercise in frustration? Shouldn't I be focused on taking meetings with people who actually do want money? It's a good question.

As I've posted before, we like to "hang around the rim" of startups.  We want to see the opportunities long before they are ready to take money from our firm. If we can give some good advice, make a few important connections for them, steer them toward good decisions, etc, then we put ourselves in the position of getting the first phone call when they come back for real money.

Of course the downside of the cliche of the week is the second part, the best way to get advice is to ask for money. When you are looking for capital, you'll get a lot of advice from VCs. That's just part of the dance. VCs love to give advice.  Frankly, its a big part of what we do; before, during, and after we make an investment. That is not to say that we give good advice, although I would suggest that the advice I give is generally pretty good.

We had lunch with a couple entrepreneurs yesterday who have been spending the past month raising a first round of capital for their company which they've been operating for almost three years. We got to talking about what they are going to use the money for.  And one of the entrepreneurs said, "after all the advice we've gotten from VCs, we need to double the size of the round to do everything we've been advised to do".  That got a good laugh from me.  Because the best way to get advice is to ask for money.

So with all of this in mind, here is my advice (notice that you didn't ask for it:)

Make sure to ask for advice from a VC before you want their money.  Don't ask for money first. Because the best way to raise money is to ask for advice and the best way to get advice is to ask for money

Comments

[jackson]

Hey Fred, I need some advice.......:)

[steve]

Love your post. But are you saying these prospective entrepreneurs/founders are following your "be coy" strategy? Or are they genuinely uninterested in raising VC money?

Also, your advice brings to mind an old saw about romance: "The man chases the woman until she catches him."

;)

SK

[Charlie Key]

Great advice that I didn't ask for. Well to help put a view on the first comment. I am a young entrepreneur and when I ask only for advice I am genuinely uninterested in raising money, this is because the industry in which I am in is very open to bootstraping a company and product together. Now this does not mean I feel like I can do it by myself, hince why we ask for advice. :)

I hope that was not too confusing.

[Dharmesh Shah]

I'd restate this more of "the best way to raise money is not to need it". But, it's your blog, so it's fine as is. :)

I think the asking for advice business is just a "signal" that you're trying to send to the VC that you don't need the money, but would love their advice.

If you need the money, and ask for advice, it weakens your position considerably.

Good article though.

[Rob]

Fred,

A corollary to this cliché is, all money is green, the best way to distinguish the quality of the money is by the quality of the advice that comes with it…

Rob

[John C. Welch]

Okay, so here's a legit question:

When your product is an Educational DVD, how do you get it into stores without going bankrupt?

In my case, it was TackyShirt, (www.tackyshirt.com), and we had a product that everyone loved, but we couldn't get it into the Apple Store to save our life, (We couldn't even find out who to talk to!), CompUSA wanted a ton of money, and by the end, we were left with only selling it ourselves and Amazon. Getting it promoted was a morass of confusion as well. It sold so badly that it just killed the planned 3 other discs, which we had footage for. We'd love to do it again, but not without a better way to sell it.

Is there ANY place that has tips on what to do when you have all the production stuff figured out, and damned near done, you have product in hand, but you can't figure out how to get people to help you *sell* it?

[Andrew Fife]

Fred:
I agree with Dharmesh, asking for advice when you need money is highly likely to lengthen the "sales cycle" for raising the round. Also, getting qualified introductions to VCs is hard for most entrepreneurs. The advice angle is compelling because most people like to help others and enjoy being referred to/seen as an expert. However, asking for advice as the pretext of setting a meeting requires a much deeper relationship with either the VC and the friend supplying the intro. For example I suspect that the advice to money meeting ratio is skewed heavily towards meetings for money, which suggests that advice meetings are harder to setup.

I think that this cliche of the week very much applies to the serial entrepreneurs that you refer to but I don't think it is realistic for most first time entreprneurs who don't have deep relationships in the VC community and really do need the captial.

-Andrew

[Chris Neumann]

Here's another way to get money - ask for engineers. When we were starting our company, we were looking to hire a few engineers. My co-founder posted to his business school's tech list looking for engineers, and got a bunch of VCs looking to invest. We took the meetings and got their advice and are still building those relationships for when it's time to actually raise money. Unfortunately, VCs don't seem to know many engineers, so we had to go to Craig's List...

[Laurent Kretz]

Andrew,
I completely agree with you. Being a "first time entrepreneur" and needing to know/learn/discover as much as i/we can isn't that easy. Money isn't an issue as our needs are really low and we finished a humble seed round allowing to launch a product, but getting advice from TOP VCs is more problematic ... We got great meeting with serial entrepreneurs, learned much more than we expected, but VCs .... nope. Especially in a time where an average of 124 products are launched every day ;)

Law students in France have to come once in a while to the court to answer general public questions for free. The last gathering VC/Entrepreneurs I saw was for $795 per person. Huh !
Wouldn't that be a nice idea ? Weekly or monthly meetings for free, first come first serve ?
My 2 cents ...

Very good post anyways !

[Jackie Bassett]

The best way to raise money is to ask for it....from your customers...even BEFORE you've built it.

Find 5 customers who will buy what you are about to build before you've even written a single line of code and you've term sheets will happen...on your terms-if you need any funding at all, that is.

Chapter 5 of "So You Built It and They Didn't Come. Now What?" Find it on Amazon.com

[simon hatziioannou]

Excellent!. Is there any way to get some piece of advise on how we, as exclusive intermediaries, shall be in a position to attract investors for touristic development projects in Greece?

Thank you for your attention.
Kind regards
Simon H.Hatziioannou
Salaminian Synergy Corp.
6 Agiou Yakinthou streete,
GR18903, Salamina, Greece
Tel:+30 210 46 91 177
Fax: 49 29 004
Cell:+30 69 42 29 29 17

[Megan Cunningham]

Fred,
I've worked at 2 successful startups from the launch (and lived to tell about it...barely, it seemed, on some days) but I'm probably in the minority of NYC-based entrepreneurs in that I've never actually pursued VC funding.

However, I can tell you that over the years I have received some extremely valuable and insightful advice from VC's I've met when sitting on panels, or at various speaking engagements (Wharton Entrepreneurs conference, NAB, etc.) Since we genuinely weren't interested in the VC backing, the interest level was a bit uncomfortable for me. And I don't mean to say that in a boastful way, it just wasn't part of our plan at the time to seek capital from that source for a whole host of reasons. My experience was that when the VC hears you are an entrepreneur, they are naturally inclined to ask you questions that presume you're interested in their money. If that was my stated objective, I would have been fine with the Spanish Inquisition --and I feel it's every entrepreneur's responsibility to have mastered their elevator pitch regardless of their lack of interest in outside capital. However, when someone starts asking you all kinds of questions about the financial picture of your business in a public setting, and you haven't asked them for a thing, I found it more than a little intrusive and at the same time difficult to avoid. So my question is this: if you're *earnestly* looking for advice and nothing but advice, what do you do then to make it clear you're not interested in opening the kimono (so to speak)?

There should be some type of sincerity-detector test in these scenarios that you can call upon to peel away the veneer of coyness and paranoia underlying such loaded interactions.

On a totally different topic...

Since we're on the topic of unsolicited advice, I'd like to offer my input on John Welch's post about getting into the Apple store and educational DVD distribution. (My company is the producer of the DVD Tutorials which are in Apple's box; and we are carried at the Apple Retail stores nationwide.)

John, I looked at your web samples and I'd be happy to talk to you about the distribution obstacles you faced, as we were in a similiar position early on (when we had 1 product, prior to developing our catalog). Feel free to email me offline.

Thanks
megan

[Intrepid]

Very nice point. It's the old adage - banker's are most ready to lend to those who least need the money. We find ourselves in the same position, right now. Five year old consulting firm, profitable, looking to expand geographically. Toying with the idea of venture capital. But I've been toying far too long, since we don't really need the money. But after reading your blog, I am sure the entire process of doing the rounds of VC's will help us learn a lot more about our business than we do now! Incidentally, (and shameless self-plug), here's my blog post on VCs

[Noel McKinney]

The worst vice is advice.

[Intrepid]

This is strange...I never posted that comment that appears on May 20. Especially given that all I do on my blog is give advice! :D