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So, you have a meeting with a VC? Are you meeting for Dough or just for Show? 5 ways to find out

If you read the numbers from the NVCA, you know that venture dollar investments in the first quarter of 2009 were down by almost half. Logic would suggest that the number of companies receiving venture capital financing is down as well. 

Although you can still get a meeting with a VC – can you still get them to write you a check? And how do you know if your VC has money left in their fund to invest – AND – if they do, if they are willing to invest it at this moment in time. The answer? Just ask them five simple questions. 

But first some background. 

In the VC business, we have what is called a “fund cycle”. A typical venture capitalist will raise a fund, invest it over the first 2-4 years, and harvest it (by taking companies public or selling them) over years 3-10. We start raising a new fund once we are almost done “picking the companies” in our current fund. Once the new fund is raised, we stop investing in new companies out of the old fund. 

Why should you care? Because you need to understand how our business works before you can figure out if we are even possibly going to invest in your business. 

For VCs the merry-go-round of fund-raising stopped with the market collapse last year. Many (but not all) of our investors had big portfolio meltdowns. Many hinted “now is not a great time to raise a new fund”. At the same time the IPO market continued its dry spell and the M&A market slowed down. As a result many (not all) VCs who were planning to raise a new fund in 2008 or 2009 did not. And many VCs counting on big exits haven’t seen them. Add this together and you can understand why some VCs are sitting on their cash. They don’t want to invest until it is clear the market is recovering. (We happen to think differently – and believe that now is a great time to invest in new companies). 

So how do you know if your VC is investing or just having meetings. With the risk of unveiling too many VC secrets, here are five easy questions to ask: 

1. When did you raise your last venture fund? If it was raised in 2008 or 2009, your VC has cash to invest. If it was raised in 2006 or earlier they are not likely to invest. 2007 funds may or may not have cash. It just depends on how quickly they invested. 

2. When do you plan to raise your next fund? If the answer is 2009 they don’t have money. 2011 or beyond and you are ok. 2010 – again it depends. 

3. How many companies do you have in your current fund? Fewer than 10 is good. More than 20 is bad. In between – it depends mostly on the size of the fund. 

4. When was your last $100M+ exit? 2008 or 2009 and your VC is probably feeling pretty bullish. 2006 or 2007 means your VC feels good but not great. If their last exit was 2005 or before, then they are worried about raising their new fund. 

5. How many companies did you fund so far in 2009? None means they are being cautious. 1-4 is a very good sign. 5+ so far may mean they are being a bit reckless 

If your VC won’t answer these questions, odds are he/she is hiding something. If we like your company, and are investing, we will be happy to answer these questions. If we don’t like your company, or are not investing, you may not get straight answers.

If you get honest answers you’ll know if you are meeting for dough or just for show.

How about us at New Atlantic Ventures? We are investing today. Actively. And our answers are: 

1. 2009 
2. 2011 
3. Nine 
4. 2007 
5. Three