The VC/PE Ghosting Game: How Startups and LPs Get Burned
The startup world thrives on chasing venture capital (VC) or private equity (PE) funding. It's the fuel that launches your innovative idea into a thriving business. But for many founders, the VC/PE game can feel more like a frustrating guessing game than a launchpad. The culprit? VC ghosting.
Imagine this: You've poured your heart and soul into your startup. Your pitch deck is polished, your business model is sound, and you've identified the perfect VC/PE firm with a history of backing success stories like yours. You hit send on that email ... and then... silence. Weeks turn into months, your follow-ups go unanswered, and the VC/PE firm you thought was a perfect fit disappears into thin air.
Sometimes, you get a response, but most of the time you don't. Or they start a game of sausage on a string. This is where continuous requests are made by the VC/PE to provide other information. Make the plan bigger, smaller, red, blue, etc. The founder (investee) does all that is asked and this goes on for a long time and ultimately there is silence. Weeks turn into months, your emails go unanswered, and your calls remain unreturned. This frustrating experience, known as "ghosting," is all too frequent in the VC/PE world.
This agonizing experience is all too common.
Why VC Ghosting Hurts Startups:
- Missed Opportunities: A timely "no" allows you to refocus your efforts on VCs who are a good fit. Ghosting leaves you in limbo, unable to adjust your strategy or pursue other funding avenues. This delays your growth and weakens your competitive edge.
- Wasted Resources: Preparing a strong VC pitch takes significant time and effort. When a VC ghosts you, it's that investment down the drain. These wasted resources could have been used for essential development or marketing activities.
- Damaged Morale: Startup journeys are tough. Constant radio silence from potential investors can be demoralizing. It shakes your confidence and hinders your ability to persevere through the inevitable challenges.
Beyond the Startup: The Ripple Effect of VC Ghosting
While founders bear the brunt of VC ghosting, it has a ripple effect throughout the VC ecosystem:
- Missed Deals for VCs and LPs: Ghosting potentially high-growth companies can lead VCs to miss out on lucrative investment opportunities. It hinders their ability to diversify their portfolio and maximize returns for their own Limited Partners (LPs).
- Inefficient System: Ghosting creates an inefficient allocation of resources. Both startups and VCs waste time and effort on dead-end interactions when a transparent communication system could streamline the process.
- Stifled Innovation: Ultimately, VC/PE ghosting discourages promising startups from entering the market. This stifles innovation and hinders solutions to pressing societal and environmental challenges.
What can founders do?
01
Research Thoroughly:
Before hitting send, make sure the VC/PE firm aligns with your industry and investment stage. A targeted approach reduces the chances of getting lost in the black hole. Business plans never happen as planned. Always better or worse. When worse you need to have a supportive partner.
02
Follow Up Smartly:
Don't be afraid to follow up, but be strategic. Craft concise emails that reiterate your value proposition and keep communication professional.
03
Build Relationships:
Networking within the VC/PE ecosystem can help you get a warm introduction, bypassing the cold email queue and increasing your chances of a response.
04
Share experiences:
Use platforms to share experiences, similar to Glassdoor. One for the VC/PE space will be launched shortly by TBLI.
This impacts the LPs of the funds as well. It hurts their returns as many potential investments are never pursued. In addition, it hurts the investor's reputation (VC/PE) as many potential deals won’t come their way. If the LP investor is public money (EIF, EIB, DFI’s , etc) then public money is being used to keep an inefficient system operating, hurt reputation and potential loss of returns. Finally, this behavior is slowing or stopping solutions to societal and environmental challenges.
A Lose-Lose Situation.
For LPs, ghosting creates a knowledge vacuum. many missed opportunities and a lack of insight into the companies that were turned down. This lack of transparency makes it difficult for LPs to assess risk, make informed investment decisions and understand the market.
Meanwhile, VC/PE firms that ghost potential investors risk damaging their reputations. LPs value open communication and responsiveness. Ghosting breeds distrust and can lead LPs to take their capital elsewhere.
So, what can be done?
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Founders:
Advocate for clear communication standards from the outset. Don't be afraid to follow up, but also set boundaries for acceptable response times. Most important don’t be afraid to walk away or say no. Consider joining forces with other LPs to create a collective voice.
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VC/PE Firms:
Prioritize clear communication with all potential investors, regardless of their perceived deal flow potential. Develop a standardized communication plan outlining response timeframes and information-sharing protocols. Remember, even a polite "no" goes a long way.
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LPs:
Demand timely responses to all potential investments and a database of all deals that come through the door. This gives LPs a better insight into the market.
A Call for Transparency
The VC/PE ecosystem thrives on collaboration and trust. By prioritizing clear communication, both LPs and VC/PE firms can create a more efficient and productive investment environment. Ultimately, fostering transparency benefits everyone – LPs make informed decisions, VC/PE firms build strong relationships, and innovation flourishes with the right capital in its corner.
By fostering a culture of transparency and clear communication, we can transform the VC ecosystem into a launchpad for innovation, not a ghost town where promising ideas get lost in the shuffle.
