Understanding VC Signals (Part 1) + Fundraising Fieldnotes 9.10.24

The most frustrating part of raising from venture capitalists is… everything. The additional work, the speed (or lack thereof), the stress. Everything is frustrating. But in particular, the finicky nature of SIGNALING within fundraising can be especially frustrating if you don’t understand what’s happening.

Because VCs are forced to make decisions with extremely limited data, social dynamics and other signals routinely fill in the data gaps. These unscientific influences can change with the winds and confuse founders. 

In this two-part series, I’ll cover how to read VC signals and use them to your advantage during your fundraising round. Today, I’ll start with a story where one negative VC signal nearly wrecked a deal I was observing. It’s a real eye-opener about how these signals can shift everything…

Story Time: From Hot Prospect to ‘Nah, We’re Good’

You might be thinking, "Why should I care about what signals VCs are receiving? If my product is solid, shouldn’t that be enough?”

Here’s an example of how this plays out in real life:

Because my work on fundraising helps me meet tons of amazing founders and learn about cutting-edge startups, I often get invited to VC partner meetings—sometimes to give opinions on deals and sometimes just to hang out. Venture capital is as much about social dynamics and information sharing as it is about dollars, so these invitations are valuable for everyone.

Anyway, a few weeks ago, I attended a partner meeting for one of the top seed stage firms in the country. The weekly Partner meeting is where a firm discusses all the deals they worked on over the past week. Each investor talks about companies they’re pursuing, and the entire team weighs in. These weekly meetings are instrumental to the investment process.

In the past, I’ve been brought in to speak about specific deals. But this week, I mostly just watched, like a fly on the wall—chiming in only when it made sense. 

The thing I’m sharing from this meeting isn’t an amazing insight that got a deal over the line or one of the main takeaways a partner highlighted. It’s really just a series of observations about how this firm was influenced by signals.

So here’s how it went. One of the investors was asked to give an update on a company they had been talking to for a while. To catch me and some of the other partners up, this investor gave the history of their time pursuing the deal. When they first met this company, they were extremely excited. The company and its founder had a lot going for them—the space was promising, and the traction seemed solid. They really wanted to do the deal.

Unfortunately, as they got closer to discussing terms, the founder indicated they were running a competitive process with other firms and began hinting at valuation expectations that this firm was not comfortable with.

The lead partner on the deal said he was honest with the founder and shared that he was excited but that they wouldn’t be able to compete at that price level. He was bummed but didn’t want to chase an expensive price. 

That was the backstory. At this partner meet, they had updates on the deal. It turns out the founder circled back that week. The deal was still on the table! 

The founder gave a bunch of excuses for why he was reaching out again and why he wanted the firm to consider doing the deal again. He was showering them with compliments, everything from “Your reputation is amazing” to “I loved our initial conversations; you really seem to get our business!” to “We’re not looking for the highest valuation; we’re looking for a great partner.” 

Seems positive, right? 

Nothing had changed with the business from when this firm was excited till now, so you’d expect the firm to rush to get this deal done, right?

This is VC signals 101.

Nothing changed other than a complete pullback of interest from the partners at this firm. As the investor telling this story was finished, not only did the tone of the discussion change, but the whole firm shifted negatively around the deal. You could feel the “ick” filling the room.

The most significant change, as I could tell, was that the founder started chasing them. This turned the partner and the whole firm off because the founder’s desperation signaled something was wrong or that others didn’t like the deal. And just like that, the whole thing went sour. It’s one of those fascinating dynamics.

In Part Two, I’ll cover different types of signals and how you can use them to your advantage. Make sure you’re locked in and ready for more—this is where things get real interesting. Catch you then!

Be chased,
Jason

Most founders struggle with storytelling in their pitches.

They trail on and on or don’t incorporate memorable speaking points to amplify their message… or both.

To help I’m releasing a FREE mini-course on how to craft and use mini-stories. It includes:

• 2 key lessons with over 10 minutes of recorded lecture content

• 1 detailed exercise to implement your learnings - a compilation of essays I wrote on narrative, deck & pitch

To gain access:

1. Click on this link

2. Take 1 minute to create an account on Circle (the platform we use for our courses)

3. Boom! access granted

After 4 weeks, you will get booted out so that we can roll out the next mini-course! (this also serves as a push for you to actually absorb the content instead of feeling like you have forever to do it)

This is a huge value add. I suggest you take advantage of it!

Just another reminder that clutter (physical and mental) is devastating to creativity and productivity. Actively remove (saying this to you all and myself...)

Cringe. Learn out to build efficiencies in outreach but do not be this person.

I’ll happily take both—thanks 🤣 

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