allensblog

More on "Why Entrepreneurs Should Never Meet With VC's Unless They're Formally Pitching"

Last week, I wrote a post advising entrepreneurs to avoid 'informational' meetings with venture capitalists, but, instead, to meet with them only when doing a formal, prepared pitch (see also this post by Adam Singolda).   A number of comments and questions ensued, as well as references to seemingly contrary blog posts by venture capitalists, Fred Wilson, Brad Feld and Mark Suster, as well as serial entrepreneur and active angel investor, Chris Dixon, all of whom I know and respect a great deal – and each of whom is a very smart guy.  Given the attention the topic generated, I thought a follow-up attempt at clarification would be worthwhile. 

As one would also expect on a topic like this, there are areas of (1) misunderstanding-posing-as-disagreement, (2) different-perspectives-posing-as-disagreement and (3) honest-to-god, good-faith disagreement.  It’s important to be clear that on this topic, like all important topics, there are few absolutes.  Here, as elsewhere in important matters, there are pluses and minuses, pro’s and con’s.  As I wrote in my original post, “…, on balance, 'informational' meetings have more risk than reward…”, so entrepreneurs are best advised to avoid them.  Reading what Fred, Brad, Mark & Chris had written forced me to refine my thinking -- always, a good thing.

1.       Misunderstanding-Posing-as-Disagreement: 

First, entrepreneurs should NOT “hide out” from, or “shun” venture capitalists until they are ready to pitch.  Far from it.  Entrepreneurs should absolutely be ‘out in the traffic’ in the relevant communities (e.g., entrepreneur meetups and other social events, participation on panels at conferences, etc.).  Having a highly-visible role as a respected thought leader in the entrepreneur’s relevant startup ecosystem – which will involve informal interactions with venture capitalists, among others -- is a benefit when one starts fundraising.  Entrepreneurs:  get out there and get involved!

What I was suggesting, rather, is that entrepreneurs not formally meet with venture capitalists (e.g., in the VC’s office going through a PowerPoint deck) to give an update on their progress unless it’s a formal pitch.  That interaction has the risks that I outlined in my original post, and my advice is not to do it.

Second, the contrary posts lamented the fact that, in this frothy market, some venture financings are happening too fast, with inadequate time for due diligence (on both sides).  I agree: it’s a bad idea for entrepreneurs to take money from a VC whom they’ve only just met and don’t know anything about (and vice-versa).  Speed dating VC's is a high-risk strategy for entrepreneurs.  As I wrote here and here, we are definitely in a bubble, with higher clock speeds on deals, and it’s definitely a bad thing.

But "deals-gone-wild" (1) doesn’t happen that often, even in bubbles (the attention that the relatively few, high-profile examples receive distorts the true, broader picture), and (2) was not what I was suggesting.  By far, the majority of venture financings do not happen quickly.  Frustratingly to entrepreneurs, most financings take 3-4 months from the first meeting with the first venture capitalist until money’s in the bank (which may not come from the first VC firm one meets).  Most startups have to meet between 4-10 times with partners at the firm and/or other people affiliated with the venture firm that eventually proffers a term sheet (most firms use a variety of outside folks to help with due diligence).  This gives the venture firm plenty of time to “get to know” the entrepreneur (plus, all VC’s spend a good deal of time formally and informally checking references on entrepreneurs in whom they’re interested).

Summing up: (1) entrepreneurs should definitely be mixing it up out there in the startup communities and (2) financings that happen too fast often result in problems when the startup hits a pothole; but the ‘normal’ venture financing process generally gives time for the VC to get to know the entrepreneur.

2.       Different-Perspectives-Posing-as-Disagreement:

In my current role as a “Sherpa”, I structure my role (including compensation) to be aligned with the entrepreneur, and it was from that POV that I wrote my original post.  Mark, Brad & Fred (and, to some degree, Chris) write mainly from the venture capitalist’s POV (See below in Section 3 for my response to their thoughts from the entrepreneur’s POV).  Not surprisingly, these perspectives are different, even opposed to some degree.  Just as one would expect in a relationship that is, at its core, based on a financial transaction in which zero-sum and non-zero-sum aspects are intertwined.

From the straightforward POV of the VC, it’s easy to see that having a long time to evaluate an entrepreneur and his startup is preferable, indeed, for the VC to wish the opposite is irrational.  Any of us wants as much information as possible before making a risky decision like investing in a startup.  I know I do.

So, no disagreement here.  When I was a VC, I always tried to figure out how to meet interesting startups and entrepreneurs over as long a period of time as I could. 

This is how VC’s should behave.  After all, they’re fiduciaries for their LP’s money.

3.       Honest-to-God, Good Faith Disagreement:

The contrary posts give two bits of advice to entrepreneurs, however, that purport to be in the entrepreneur’s interest, and this is where we have a respectful, good-faith disagreement. 

“It’s a Marriage”: The contrary POV argues that, because an investment is like a marriage, it’s in the best interest of the entrepreneur to spend time with venture capitalists prior to the pitch to determine whether the “marriage” will work out.

In a perfect world, this is true.  But, (1) over the course of interacting with the VC as part of the normal, several week- or month-long process of getting financed, the entrepreneur can perfectly adequately do this after making the initial pitch, plus (2) there are a myriad of easily-available sources of information, formal and informal, about VC’s that entrepreneurs can access (before and after the initial pitch).   As I point out in my original post, given this, I think the risks of ‘informational’ meetings outweigh the benefits.

“You Need to Do It to Get Financed”:  Finally, an implication of the contrary POV is that, because VC’s view it as so core to their process of evaluating startups, entrepreneurs maximize their chances of getting funded by having ‘informational’ meetings with VC’s before pitching them.  Said another way:  (1) such interaction is highly desired by the VC, if not a prerequisite to getting an investment, (2) given the asymmetric power relationship that most often obtains between VC’s and startups, (3) entrepreneurs need to comply. 

Fred, Brad, Mark & Chris are highly-sought after investors (for good reason – I’ve referred a number of my “Sherpa” companies to each of them for financing, and would have them involved in all of my deals if I could).  They, together with a few, elite other venture capitalists, may add so much value that entrepreneurs should be willing to have ‘informational’ meetings with them to increase the odds (however, slightly -- given the low odds of any particular startup being funded by them).

But, even with respect to them (and certainly all other VC’s), and, “on balance”, the entrepreneur is best advised, as I argued in my original post, to (1) figure out which VC’s should be approached, (2) get warm introductions to them, (3) make a polished, well-prepared pitch and (4) be 100% on the ball whenever dealing with the VC (as Mark Suster says, ”always be pitching”) throughout the financing process.

Brad mentions that his firm, Foundry Partners, has done pre-emptive deals without the “pressure” of interest from other VC firms motivating them.  If Brad says it, I believe it.  But, if this is true, Foundry is rare (as I’ve mentioned, it is a very good, very successful firm), but, even for Foundry -- and, certainly, for most, if not all, other firms -- a certain level of competitive pressure among VC firms looking at the same deal is most beneficial to the entrepreneur.  To maximize their outcome, entrepreneurs should strive to generate this (more on how in a future post).

 

[Postscript:  Immediately above, I say that, from the entrepreneur's POV, "a certain level of competitive pressure among VC firms" is a good thing.  Too much pressure, however, can be counterproductive.  Some of the best VC firms will withdraw from a deal they consider "overheated" (i.e., around which there is too much competitive pressure), rather than enter the competition.  This, however, is quite rare.]

Why Entrepreneurs Should Never Meet VC's Unless They're Formally Pitching

[Addendum to the original post:  The next post attempts to clarify the positions of several, apparently contrary blog posts, as well as some of the comments generated by this post.]

One of the things I do for my "Sherpa" companies is help them raise money.  Recently, I've had the same discussion with several of them:  whether to have 'informational' meetings with VC's as a prelude to later, full-on 'pitch' meetings.  My advice to entrepreneurs and startups is that, on balance, 'informational' meetings have more risk than reward -- so don't do them.

First, regardless of the nominal reason for the meeting, VC's always assume that entrepreneurs are meeting with them to pitch.  VC's have money; entrepreneurs want it.  That's the fundamental nature of the relationship.  When the meeting is premised on the notion that it's just 'informational', there is a risk that the entrepreneur is too casual, not well-prepared, lets down his guard and does not put his best foot forward.   And, because they're wired this way, that is what the VC is likely to remember:  a lousy pitch.

Second, as I've written elsewhere, although I've never heard of a VC "stealing" an idea from an entrepreneur, VC's do learn from every startup that pitches them.  No surprise: VC's, even in their field of speciality, can't focus as much on any single startup idea as the entrepreneur(s).  The risk here is that, the VC, now smarter thanks to the entrepreneur, "passes" on the entrepreneur's deal (even though he wasn't being pitched) for any one of a number of reasons, but then meets another startup team that he likes and that is doing something similar, or hires an entrepreneur-in-residence with a similar idea.   Now, the VC has a 'prepared mind' and can be of more help with what could turn out to be a competitor.

Third, the first thing VC's do when they meet with other VC's is talk about interesting startups they've seen.  If a startup has just met with a VC, even for an "informational" meeting, that VC is likely to mention it to colleagues and other VC's, although likely not with the qualifier that "it wasn't a real pitch".  Several months later, when the startup is 'really' fundraising and they meet with the VC who heard about them several months ago, the startup may appear shopworn; that is, the VC may well think something's wrong with the startup -- he first heard about them several months ago and they "still haven't been able to raise money".

In my experience, entrepreneurs usually give two reasons for wanting to have "informational" meetings with VC's.  They think it improves their chances of getting money when they ultimately pitch the VC for real (because the VC will, in some sense, be more up to speed and a more sympathetic listener, and/or will be impressed by the progress made since the non-pitch meeting), and the VC might get so excited by the non-pitch that he makes a pre-emptive offer (i.e., one that is so high, no other VC will beat it).

Neither reason is good.

While there is an old saw that "...when you ask a VC for money, you usually get advice; if you ask for advice, you're likely to get money...", I don't believe it.  The best way for an entrepreneur to get a VC interested in his startup is to have a great idea and pitch it in a formal, polished and impressive way.

And, finally, no self-respecting VC will make a pre-emptive offer (even to get a deal early) if he thinks that he's got the inside track on a deal.  The only way to get a pre-emptive offer from a VC is to have other VC's interested.  No entrepreneur ever got a VC to substantially increase his initial offer merely by presenting more data (even great, persuasive data), showing why the startup should be valued higher. 

Entrepreneurs -- if you want to get a VC to make a pre-emptive offer, get other VC's interested in your deal.

Startups and Entrepreneurs: How to Handle Your Board

Yesterday, I gave some advice to entrepreneurs on how to deal with their boards (and investors).  For more on dealing with your board in a startup, here's the best advice that I've heard.

Bubble Debate: Nail in the Coffin & Lessons for Entrepreneurs & Their Startups

As I wrote here several weeks ago, I use a simple test to determine whether we're in a 'bubble'.  That test says we definitely are. But, maybe there's room for one more nail in the coffin of the debate...with an oblique lesson for entrepreneurs and their startups.

When Groupon filed for its IPO, commentators (example) pointed out the unusual, informal accounting used by the Company.  Yesterday, the SEC announced that it's reviewing that accounting (strictly speaking, Groupon does actually present its financial statements in accordance with GAAP (SEC requires it), but spends a lot of time pointing investors to a bunch of novel, more favorable, non-GAAP accounting measures that present a more attractive growth story than do the GAAP financials).

When companies start doing this, all I can think of is the last bubble, with bad accounting stuff happening all over the place: e.g., WorldCom recognizing hundreds of millions of dollars of revenue from bandwidth swaps, AOL recognizing tons of "revenue" on "round-tripped" revenue, etc.  It's always been a harbinger of trouble, and, having been in the business for 30+ years, always forebodes bad news.

For early-stage entrepreneurs, there's an indirect lesson here: honestly and transparently report, analyze & deal with the core "financial" metrics of your business with your board and investors.  When you are presenting, say to your board of directors, on the health of your startup, never lead with any statistic other than revenue and earnings (or losses -- as all startups have initially).   As a board member, I can always tell how a company is doing, and how confident a CEO is in the business by how long it takes in the board presentation for the CEO to talk about (1) revenue and (2) earnings (however accurately defined for that business).  When a CEO spends time talking about press mentions, conference awards, employee growth, buzz about the company -- but not about how the company is progressing towards the goal that all self-sustaining companies must reach -- receiving more from customers for what you're selling than it costs you to make and sell it -- you know your investment is in trouble.

My advice to startup CEO's: don't be afraid of this.  Instead, embrace it.  Stringently measuring yourselves against this standard shows your board and investors that you're serious and honest.  Focusing on other "metrics" about how the business is doing to the exclusion (neglect) of financial accounting metrics is usually interpreted as a sign that your startup isn't doing well on what matters.

Postscript:  this is not to say that other metrics aren't important.  Particularly for startups building a "media" model, in which they need to generate large audiences for content (however defined), other metrics are also important: unique visitors, user engagement with the site, effectiveness of the site in getting users to help market the site to other users (virality, WOM, etc.).  For businesses like this (more in a future post), it makes sense to pursue the GEM model: (1) Growth, (2) Engagement and (3) Monetization -- and, importantly, pursue them in that order.

 

 

 

Why Entrepreneurs Shouldn't Worry about NDA's

I've been working with entrepreneurs and their startups since 1979: for ~20 years as their lawyer, the next 12 as a VC at Mayfield and, currently, in my "Sherpa" capacity.  Seen a lot of movies.

I'm wondering if it's just me, but I've noticed a trend recently, both in the startups for whom I'm a Sherpa (for the investors to whom I introduce them), and those who approach me to see whether my Sherpa role is a fit, towards asking for (in some cases insisting on) an NDA.

For a couple of reasons, I think this is a mistake.

First, VC's normally won't sign them, as a matter of prudent policy (under severe pressure on a very competitive deal, some will).  Why?  VC's see lots and lots of business plans.  In the 12 years I was a VC, I never saw one that, really-honest-to-God, was unique; that is, I never saw one that didn't have at least one other (frequently more) startup(s) doing something similar, if not the same thing.  So, for the VC, it only invites trouble to sign an NDA.  For the startup and its entrepreneurs, it's a head fake.  Litigating and winning a case alleging breach of an NDA is very difficult, expensive and a huge distraction from what you should be doing (see below).

NB., that is not to say that VC's routinely violate the "spirit" of NDA's.  I don't think they do.  Although urban legends of this exist (and maybe it's even happened), I've never seen it myself.

But, second, even if they did, I've come to believe that it doesn't matter.

After all this time working with entrepreneurs and startups, I now believe that almost all success stems from the following three things:

• good idea addressing a good market (but no one I've ever met had a unique good idea);
• killer team; and
• great execution (including the ability & courage to pivot when the originally proposed idea for the business isn't working -- which may be the hardest thing for an entrepreneur to do).

Note that the four basic food groups of intellectual property, patents, copyrights, trademarks and trade secrets, are not mentioned (Part of this stems from the areas in which I invest: digital media, ecommerce, interactive entertainment, consumer internet, online and mobile advertising, etc., are not the areas in which IP matters much.  My rule may not hold in other areas, especially semiconductors and communications equipment, where patents can actually be valuable).

That said, I can honestly assert that, from my experience, an awesome idea, adequately covered by available IP protections -- but with crappy execution -- never wins.

So, my advice to entrepreneurs and their startups: don't sweat the nondislosure stuff.  No need to publish your business plan on the front page of the NYT, WSJ or FT (although, if you did and someone else read it there and outfoxed you in terms of success -- you didn't deserve to win), but focus on ruthless analysis and testing of your core idea (including pivoting if you weren't aimed in the right direction), recruiting a killer team (hard in these exuberant times!) and executing like a sonofabitch.

If you do, your chances of success will be maximized.

 

What's a Home Run (in VC-speak)

To their confusion and exasperation, entrepreneurs often hear from VC's that the VC is passing on their deal because the VC doesn't see how it can be a "home run".  Understanding how VC's think about "home runs" is important for entrepreneurs (and their advisors who help them with fundraising) in choosing which VC's to pitch.

Historically, the VC business has been a "hits" business.  For most VC funds over a 10 - 15 year period, more than 90% of the returns come from fewer than 10% of the investments (this is, actually, probably conservative).  Investments in the other 90% either go out of business or deliver meaningless-to-modest returns.  This highlights the perils, quirkiness and luck-ridden nature of early-stage investing.  It also, to some degree, explains why many VC firms that traditionally focused on early-stage deals are morphing into later-stage, growth equity funds (more on this in a future post).

So, what is a "home run"?  Two factors determine the answer, one obvious, one more subtle.

First, the absolute size of the return is an obvious component:  No matter what, the bigger the return, the more likely it will constitute a "home run".

The second attribute, however, is less well known: the ratio of the absolute dollar size of the return to the size of the fund.

Why is this?  Shouldn't a $1 million investment that yields a $25 million return be good, bad or indifferent regardless of the size of the fund from which the investment was made?  It's the same amount of money, and the return is a lot higher than the amount invested.

A major component of the answer is that VC's are principally graded by their LP's on what's called "times return", not so much on an IRR basis (though both matter). Briefly, "times return" means for every dollar invested by an LP, how many dollars does that LP get back from the VC -- over the life of the fund, not in any particular year.  There are a number of reasons for this that I'll deal with in future posts, but the relevance here is that "times return" is very important for VC's and their LP's.  More "times return" is better.  One can also see that generating a good "times return" is easier on a smaller fund than a larger one.

Historically (lots of variation in this as you'd expect from a business as volatile as early-stage VC), VC firms that achieved 3X "times return" (on a "net" basis, which I'll explain in a future post) were in the top quartile of VC funds and had no trouble raising their next fund.

The "home run" nature of the early-stage VC business, combined with the importance of  "times return" to the VC business model, means that entrepreneurs should focus their fundraising approaches on those VC's whose funds are appropriate to the amount of money needed and the possible size of outcome that an entrepreneur can reasonably (and credibly) portray to the VC.   Approaching a $500 million fund (average for VC's in today's world) for a $1 million dollar investment is likely a waste of time.  For a fund of that size, even if the $1 million investment returns 25X (a very good "times return" in VC-land), the resulting $25 million return (given the hits nature of the business) won't move the needle. 

For a $25 million return in a $500 million fund (even on a $1 million investment), half of one's partners might remember to mention it to you on their way to the coffee machine (it not being worth a special trip down the hall to your office), the second half wouldn't think it noteworthy enough to mention at all, and the third half would say to themselves: "why did he spend so much time on such a crappy little deal?").  For a $25 million return on a $40 million fund, your partner(s) send you and your family to Hawaii on an all expenses paid week-long trip. 

Size of fund is not, of course, the only attribute of a VC that an entrepreneur should consider in his fundraising approach (there are a number of others), but it is a very important one.  More on others in subsequent posts.

"Fully-Diluted"

In a deal recently, the term sheet offered by the prospective investor contained a reference to the term: "fully-diluted". The company accepted the term sheet and the lawyers drafted the documents. On review by the Company, however, it became clear that the parties had different interpretations of "fully-diluted". Due to some idiosyncracies of the company's capital structure, the disagreement had a significant impact on the deal structure.

While that deal recovered and closed, it highlights the need for entrepreneurs and investors to understand when so-called defined terms like "fully-diluted" actually need explicit definition in the term sheet.

The term "fully-diluted", unlike some legal terms, is not defined by any law or regulation. That is, there isn't any place to go "look up" what it means. This, plus the informal way the term is used in venture financings, puts a premium on the parties explicitly agreeing to a commonly-understood definition.

In general, the term "fully-diluted" attempts to capture the notion of how many shares of Common Stock would be outstanding if all securities of the company that either (1) are outstanding or (2) are available for the board to grant or issue actually become Common Stock in accordance to their terms. This "fully-diluted" number is sometimes called "common stock equivalents".

In essence, there are two kinds of securities that need to be considered in fixing the number of "fully-diluted" shares: (1) outstanding common stock and (2) so-called "deriviative securities". Many different securities can fall into this latter category, but usually in a startup company situation, there are the following 3 - 4 types:

• Stock options (or "warrants", which are exactly the same thing, only called by a different name) that are actually granted;
• Stock options that are reserved for future issuance by agreement among the company and the investors (various consequences occur if this number is exceeded, most commonly an antidilution adjustment to the effective "as-if-converted" price of the Preferred Stock);
• Convertible promissory notes, which are frequently used in seed financings, and which convert into (usually) the series of Preferred Stock issued in the company's next financing;
• Preferred Stock, which is usually the security issued in VC financings, and which converts in certain circumstances into Common Stock.

In this situation, the maximum, fully-diluted number of shares outstanding would be calculated by counting the number of outstanding shares of Common Stock, as well as assuming all the following had occurred and been added together :

• The number of shares of Common Stock that would be outstanding if all stock options (and/or warrants) were fully exercised
• The number of shares of Common Stock that would be outstanding if all stock options reserved for future grant were actually granted and fully exercised
• The number of shares of Common Stock that would be outstanding if all outstanding convertible promissory notes were converted into (usually Preferred) stock and that Preferred Stock was then converted into Common Stock
• The number of shares of Common Stock that would be outstanding if all outstanding shares of Preferred Stock were converted into Common Stock

There can be other, more complex securities (e.g. certain kinds of so-called "exchangeable securities) that also need to be considered in certain situations. The key to avoiding disagreements is to make sure that the parties have a common understanding of the types of "derivative securities" that are outstanding (or could be pursuant to current agreements), and that they agree on which of them gets counted as part of determining the "fully-diluted" number.

DSK & The US Criminal Justice System (Oh, and the Media, too).

We have always liked public hangings in West, and we actually performed them until embarrassingly late in our history. Sometimes, we even held a trial before convicting and hanging the suspect. And, sometimes, the person hanged was even guilty. It's not much better today in the U.S. with elected prosecutors almost always using the office to which they were elected as a step along the way to a higher office. And, finally, the criminal justice system is deeply flawed when the alleged perpetrator is a predator and the alleged victim is a prevaricator. Although I rarely think highly of her columns, I do think Mauren Dowd captured this tension well on Sunday in the NYT.

More on "Those !@#$%^& Secondary Markets"

A few days ago, I wrote in defense of secondary markets for shares of private companies against critics who argued they were dangerous, over-priced, take-advantage-of-the-little-guy markets (full disclosure: I'm an investor and Board member of SharesPost, a principal player in the space). Here's more data from the Pandora IPO that supports the arguments I and others have made that the secondary markets, SharesPost and others, are actually reasonably stable, fair places to trade -- at least compared to the public markets (which no one suggests we close down or more heavily regulate).

Some good points from the above-referenced post on NowStreetJournal.com:

• On 12/10, 409A price = $3.14.
• On 6/1, IPO filed at $7
• Final offering price was $16.
• Traded up to $26 (wonder who made the $$ here; hint, it wasn't Pandora), then ended the first day at $17.42 -- 6x the 409A set 6 months ago.
• Then, the stock dives and closes the week at $13.40, breaking the offering price.

Interestingly, on SharesPost, no Pandora trades ever occurred precisely because prospective buyers (most bids = $3 - $4/share) wouldn't pay the price sellers were demanding. So, remind me why many castigate the secondary markets among accredited investors in private shares as being over-priced? Could it be self-interest among large financial institutions who buy secondary shares and who might not want better price discovery?

Investor protections are important, so it's critical to maintain those, and, at least on SharesPost, we spend a lot of time, energy & effort doing so. Lesson here (at least for fast-growing companies that aren't yet profitable, established businesses) may be to "let it bake" a bit longer before going public, while allowing, via secondary markets like SharesPosts, some liquidity along the way to shareholders who want/need to sell. So far, based on the experience with Tesla, LinkedIn and Pandora (the three available data points), Sharespost and other secondary marketplaces are good capital markets solutions for that.

Walk the Walk, Not Talk the Talk

As in many other situations involving asymmetric power relationships, VC’s (who usually have the power) like to preserve optionality with startups in which they’re interested.  That is, VCs generally will try to keep interesting deals “on the hook” until they have to make a decision (usually driven primarily by the concern that other VC’s are converging on the deal).  From the VC’s POV, this is eminently rational.  Why make a risky decision (i.e., whether to invest) until you have to – waiting may allow more data to emerge that will inform/improve your decision.  Accordingly, VCs, good ones anyway, become quite skilled at saying things, whether or not true, that make entrepreneurs think there’s serious interest in their deal.

For the entrepreneur, this frequently leads to disappointment.

Experienced entrepreneurs know that they cannot rely on anything a VC says about where the VC really stands.  Here’s the only way to tell if you’re making progress with a VC: is the VC rearranging his schedule to work on your deal?  If not, you’re making no progress.  Whenever a VC misses a deadline in getting back to you, it’s a bad sign.  In general, given how time-consuming the fundraising process is,  the entrepreneur should consider that VC a “pass”, and focus fundraising efforts elsewhere.

[As an aside, in the roughly 20 years I spent as a lawyer representing entrepreneurs, I used to tell my clients that the worst curse they could inveigh against a competitor was that the competitor had to seek venture financing.  That guaranteed that the management team of the competitor would have to take their eye off the ball for 3-6 months.]

Even “scheduling-altering behavior” by the VC, however, is not always a good indicator of an eventual offer.  Many deals evoke an initial burst of activity by a VC (especially if the deal is perceived as “hot”), only to have the activity level fade and turn into a “pass”.  Not infrequently, in my experience in representing entrepreneurs as their lawyer, the last thing an entrepreneur may hear from a VC before “We’re going to pass.” is “Would you consider raising a bigger round?”.  The only certain way for entrepreneurs to know their deal is closing: when the VC’s wire transfer hits their account.  Until then, best to remain skeptical, and keep plugging.

[Further aside:  VC’s often “communicate” that they’re not interested in an entrepreneur’s deal by going radio silent.  A frequent lament from entrepreneurs is that most VC’s with whom they meet once never get back to them.  Another lesson for entrepreneurs:  if you have written to a VC twice, without reply, it’s a pass, and you should move on.  For some reason, it’s a hard lesson for many VCs to learn that the second-best answer to an entrepreneur is a quick “no”, even with no explanation. Open loops are mentally and emotionally draining, especially for entrepreneurs raising money, so the fewer the better].