"Currently we don't have time for due diligence"

I had an email exchange with a guy earlier today that seems worthy of a quick blog post. After receiving a 30 second description of this entrepreneur's business (literally 30 seconds), I reached out to him to let him know that I thought what he was doing was interesting and asked if he would like to get together to talk more about what he's working on. Here's the email I got back from him:

Would you be interested in investing? We aren't in funding raising mode at the moment, but would be interested in a 30 minute conversation if that would bring you to a decision if you are interested in putting in money as a convertible note…. Currently we don't have time for due diligence.

I'm not sure which is more disheartening, 1) the idea that an entrepreneur would think this is a reasonable response to a request to get together and talk about his business or 2) the fact that there are "investors" out there who would consider putting money into a company after receiving such an email (in fact, I'd be willing to bet that there are "investors" who have already put money into this company under the same circumstances).

Perhaps I'm old fashioned, but I still think investing involves more than a 30 second pitch. I've written about this before -- there is a big difference between moving quickly and abdicating all responsibility. Sure, there's lots of money out there today. But there are also lots of great investors who can be way more valuable to a company than simply acting like an ATM.

Comments

[Jake]

Dave, it's egregious, but as you point out, it's plausible that it's worked in the past. This guy obviously lacks the skills to assemble a deal and at some point his startup will suffer as a result. But it's up to VCs to police this lack of capability through the non-allocation of funds to this kind of joker.

[Brett]

Agreed that it's ridiculous, especially to ask a VC. I wouldn't recommend that an angel pursue an investment after a single pitch either, but if they do, at least it's their own money at risk. When you say it to a VC, you're asking them to take wild risks with other people's money. I don't want to think that any VC would be OK with that, but sadly, some probably are.

[Andrew Anker]

I think you're looking at this wrong. This was simply the shortest due diligence process you've ever done and probably the easiest to make a decision from.

[Chris Padfield]

Is the key here not:

"We aren't in funding raising mode at the moment"

Presumably they would "have time" for DD if they were fundraising. They are not.

How did the 30 second pitch get to you? Presuming he did not send it to you then from his perspective he has an investor wanting to take up his time to invest money which he does not feel he needs right now. Thinking it a bad idea to turn down money; he'd be happy to take a convertible loan if it only took limited time from his existing workload (given getting investment is not a priority rightnow).

Does not seem that bad to be; but does depend on how initial contact was made.

[Hong Quan]

That's a pretty bold thing to say, but it shows a lot about the person saying it. Maybe they've already got all the money they need and VCs as ATM is one way of thinking. I'm more interested in an Investor's time than their money. Take as long as you need to, I'll be learning the whole way.

Cheers,
Hong

[Nabeel Hyatt]

Had basically the exact same conversation yesterday in SF. I think it's bad in BOTH directions, the entrepreneur has no idea who they are "hiring" as an investor. Reckless.

[Aaron Klein]

I'm going to use my air quotes a different way.

That "entrepreneur" is definitely missing out on what real investors can bring to the table.

[ProductivNation]

Hey Dave,

If this guy is not interested in "a 30 minutes conversation", I am!

Can I claim his spot and use the time you had for him?

In Bar, on Skype, in a Lounge, at the airport, in a taxi? Let me know!

[Robert Hoffer]

Andrew's right. Move on. But expect a lot more of this arrogance as the new bubble forms. It's the "a billion dollars is cool" mentality and soon what's left of the Silicon Valley investment community will be playing the same crazy overvaluation game again. If the appetite for IPOs re-emerges it'll get worse.

[CatchDaRayz]

I'm with Andrew Anker on this one. Due diligence completed, decision is "pass". If you are curious, you could always keep on eye their site. But maybe they're doing stealth as well ;-)

[John Furrier]

Hello bubble. I bet this is really getting you scared because as it is being talked about Angel-list is disrupting VC :-)

This market is crazy. Are you scared?

I'm cash flow positive and would love to get together with you for 30 mins :-)

[Jmooneylca]

You should have just asked for his bank account info and mailed it to the guy in Ghana that is willing to share his fortune with you...the funding would be complete by lunch.

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[Micah Deriso]

We are not raising funds either but, I can tell you that when people reach out to us we always talk with them. We are open, honest, and upfront about where we are and our short/long term goals. Some of those goals may include funding at some point and the goal is to be making those contacts now, building and developing that network and keeping interested parties updated as to the progress we are making. I don't have a ton of time either as we are building a company too but, networking and the ability to call on that network at some point is critical for the success of growing companies.

[SarahPrevette]

Clearly not the wisest remark an entrepreneur could make to one of the top investors in the country, but before everyone screams "bubble" let's be realistic. Raising capital is a major distraction. Due diligence can prove to be a serious hindrance to a founder who is trying to contend with the challenges of running/growing an early stage startup. I'm giving him the benefit of the doubt here, but I have seen a a growing trend of entrepreneurs who are steering clear of VC because of the amount of time it takes them away from working on their business. I'll add a caveat that if this was the rationale he could have perhaps re-phrased his reply to be a bit more cordial, but nonetheless I think a founder is vindicated in protecting their time and vetting interest before taking meetings.

[Damiansen]

As an investor, why wouldn't you just plain ignore this like you'd do with any other low quality pitch? (ignore as in move on, politely?)

Like ransoms work because people pay them, it may be the VC industry fault for this laxative behavior? Regardless of the fact that the guy may be an hot-shot entrepreneur or have a genius idea?

There seems to be a notion out there that superstar entrepreneurs turn everything into gold and everyone should just give them money without asking (some VC's admit it)... Will that hold true in 5y time, when it's time to do the math?

5 cents from one of the 99% anonymous (as in invisible) entrepreneurs

[rama]

Look at the bright side, you spend 30 seconds on the phone, 1 min reading the email, finishing a decision on a deal in 1.5 mins is awesome,
Thank for taking time to blog about it, #AnnalsOfVcInvesting

[Sean]

Plenty of better-prepared folks with ideas who will take his place. I'd like to think I'm one of them. If you're interested in the early-stage ideas and being part of the genesis of something great, I'd love to pitch something to you.

[Paul Doughty]

You are investing in more than an idea... you would be investing in the person. As I've heard, you bet on the jockey, not the horse... well this guy is a "donkey". I would LOVE 30 minutes of your time.

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Like ransoms work because people pay them, it may be the VC industry fault for this laxative behavior? Regardless of the fact that the guy may be an hot-shot entrepreneur or have a genius idea?

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[Albert]

As a person who has gone through due dilligence and came out on top, I'd have to say I'd never do it again...ever. If you want to invest, then show me the money...if not, leave me alone as I have no time for any of the BS that comes with it.

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