“What you did was incredible,” the associate at the venture capital firm, "Donald Ventures," said to me. “I’ve never seen anyone handle ‘Raul’ like that.”
We were walking out of a diligence meeting at DV's office on Sand Hill Road. This meeting was the last meeting we would have with Raul’s fund before they gave us a term sheet.
Raul was a legendary tough guy. He was only 5′ 4″, but he was intimidating. His words were biting, and he didn’t like hearing bullshit.
The questions Raul wanted to ask were around my background and the background of one of my co-founders, “Randy.” I knew the minute Raul got started what he wanted to hear.
I didn’t use any magic tricks or deception. You don’t need any of that.
All you need to do to build credibility is be prepared, be brutally honest, and get ahead of the story.
Raul’s question to me was simple. “What am I going to learn about you that the references you provided aren’t going to tell me?”
Raul was really asking me, “Are you going to be honest with me about your shortcomings?” I didn’t mince words.
“Depending upon who you talk to, you might hear that I can be abrasive, argumentative, and difficult to deal with.” Raul started pointing to notes in his notebook to the two associates he brought to the meeting.
Raul smiled at me.
I had passed the test. Randy wasn't so fortunate.
“Okay, what about you?” Raul was now pointing to Randy.
“You’ll find I am stand up citizen,” Randy said, trying to make a joke. I wanted to scream, “Wrong answer!” But Raul took care of that for me.
“Don’t bullshit me!” He said in a stern voice that said he meant business.
“I know everything about you,” he said waging his finger at Randy. “How many wives have you had?”
“Uh, four.” Randy answered meekly.
Fortunately, Randy’s answer didn’t derail the investment. A week later, Donald Ventures presented us with a $12 million term sheet.
You can take the sting out of being grilled.
A. You need to be prepared.
You know your business better than any investor should. Use this to your advantage.
You know the strengths of your business, and you know the weaknesses. Have more knowledge than anyone else in the room, so you can answer any question an investor has.
You also know your history. The longer you’ve been in business, the more enemies you’re likely to have. Your investors are likely going to find your enemies.
So know what negative things people have to say about you, and don’t hide from them.
B. You want to get ahead of the story.
Because you’ve prepared so well, you can anticipate the questions you are going to get asked. Don’t hope the tough questions will not get asked.
Instead, get ahead of the story by adding the tough questions with the answers to your slide deck. That’s how you build credibility.
For example, a very well-prepared CEO presented to the VC partnership when I was an EIR. The CEO pointed out competitors that we didn’t know about from our research on the company.
Mike, the managing partner of the fund, said after the meeting, “He (the CEO) told us about competitors we didn’t know about.” The CEO’s company received a term sheet from us.
C. Have a back up slide deck.
Your investors are right in front of you. You always want to answer as many questions as you can face to face or zoom to zoom while it’s fresh in your potential investors minds.
That’s why you have a back up slide deck. Some subjects just don’t fit in your deck. You can put the other hot topics or details here.
Now you are prepared. Then…
D. Consider adding a section titled, “Why you shouldn’t invest in our company.”
This is a gutsy move, but after you’ve pitched your company for a bit, you’ll know the reasons that investor don’t want to invest. This is another opportunity for you to hit head-on their concerns.
Just because you don’t speak about something doesn’t mean it’s not a concern to your investors. Remember, you want to run to the fire, not away from the fire. Then…
E. You should be brutally honest.
Be honest about your shortcomings. Investors are going to figure them out anyway, so take the sting out by telling investors directly that this is a shortcoming.
Then tell investors how you are dealing with the shortcoming. Then…
F. Use the improvisation technique of “Yes and.”
Never, ever, ever tell an investor they are wrong. Ever.
The second you tell someone they are wrong, the game changes. Now, the investor wants to defend the position, and you’ve likely lost their potential investment.
Instead, use the improvisation technique of “Yes and.” In other words, accept the position the investor has taken, and then add your take about what you believe.
Yes and is a way to say, “You’re wrong” without saying you’re wrong.
Your credibility improves with being prepared.
You know the old saying about thinking fast on your feet. Thinking fast on your feet comes from the hours of preparation you do in advance of that 30 minute pitch you’re about to give.
You wouldn’t run the 100 meter dash in the Olympics without a huge amount of preparation. Well, you’re in the Fund Raising Olympics and preparation matters.
Preparation, plus brutal honesty and good communication techniques will allow you to improve your credibility to investors.