036. Talking About Exits

VC Minute
This week I'm covering things NOT to say to investors, starting with... exits. Talking about an exit strategy at the seed stage is ridiculous.

VC Minute – quick advice to help startup founders fundraise better.

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This is Rich Maloy with SpringTime Ventures, bringing you the VC Minute, quick advice to help startup founders fundraise better.  

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This week on the VC minute, we’re going to talk about things you shouldn’t say to investors. 

I’ve been asking founders for a while now, “where do you see your company in five years?” The answer I hate to hear is, “we’ll have an exit by then.” 

Okay, hold on. You and I both know that I have a fiscal responsibility to my investors to return multiples of their capital. And I do that by having liquidity events from my investments. 

But if you think that telling me that you’re going to sell your business in five years is what I want to hear, you’ve got it wrong. Angels want to hear about this, but not VCs. And for me, it actually throws up two major red flags. 

First startups are hard. Really, really hard. If you’re in this only for the money then I question if you’re going to have the grit to push through all the unforeseen, gut-wrenching keep-you-up-at-night problems that will come your way. 

There are dozens of studies that show that money is not a prime motivator. And if you’re in this only for the money then I’m wondering, “do you really have enough motivation to get through the hardships?” 

Second, while it’s true that I am looking for exits, what I’m actually looking for our return-the-fund exits. I talked about this last week in episode 33, so go back and give that a listen to hear me talk through venture math at a very high level. 

I’m not looking for a dozen companies to return two to three times the investment. I’m looking for your company to return the whole fund, and then some. That’s how venture capital works.  

I’m also of the firm belief that your pitch deck should not have an exit slide. I think that talking about an exit strategy at the seed stage is ridiculous. Sometimes you don’t even know what your customers want to pay for, and you want to talk about who’s going to buy you? That’s silly.

I want to back founders that want to change the world. Not cash their chips in. 

I strongly recommend that you don’t talk about, exits, that you talk about the future that you want to build with your business. Go back to that Mike Maples quote from Floodgate,  great founders are like time travelers. Go to the future and tell me what the world is like. 

Just don’t tell me that it involves an exit in five years. 

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