Lies venture capitalists tell entrepreneurs

My last column was about the lies that entrepreneurs tell venture capitalists like me ("Cisco wants to be my strategic partner," "The market is going to $7.2 billion - and we will get 20%," and so on). That piece generated an outpouring of positive reader feedback, so this month, I thought I'd follow up with a list of the Top 10 lies some venture capitalists (not I, of course) tell entrepreneurs:

Lie 1: "Our money's different!" What we really mean is that you should reject other venture capitalists' better terms because we are going to spend a lot of time "helping" you. Miss your ship dates and we will give you all the help you need . . . to find a new job.

Lie 2: "We are sending in the term sheet - sign it, and we're on our way!" To where? The term sheet makes you stand still so we can do the due diligence we were too lazy to do in the first place. We will talk to every customer, every supplier, every competitor - and in the meantime, you can go suck eggs for 30 days while we figure out how to wiggle out of some of the terms.

Lie 3: "There is no need for us to sign a nondisclosure agreement. No one in the industry does!" In other words, tell us your innermost secrets and we promise to . . . never forget your generosity.

Lie 4: "We can help you negotiate with the investment bankers!" You betcha. We owe Goldman big time for the turkey we sold it last month . . . and you are the "make good." Besides, Piper Jaffrey gets me all that "Friends and Family" IPO stock . . . so our short list is going to be very short.

Lie 5: "We can help you recruit a world-class board of directors!" Actually, we will get other CEOs who we are backing to sit on your board. We especially like CEOs who still need our money. But you can bet they will be independent of our wishes.

Lie 6: "We should do a 'D' round now right before the IPO just in case!" In case you didn't realize that we are stuffing more money into your company because we know we can make four times our money in 90 days, which is a "fair" return.

Lie 7: "We want to put in our money in Redeemable Participating Preferred, of course." We have terms so arcane that the Supreme Court couldn't understand them. What we mean is we will put in our money on Monday, then float a loan for you that pays us back on Thursday, but keeps our ownership at the same ridiculously high level in case you make it. But if you don't, we get paid four times our investment before anyone else does. Got a problem with that?

Lie 8: "You will have me on your board and can think of me as a full-time advisor!" Actually, I am on 12 or 14 boards, and I spend half my time looking for new deals. So you will see me about seven days per year, unless you put in videoconferencing, which means you can see me juggle two telephonic board meetings at the same time. But I will send you my picture to hang over your desk.

Lie 9: "We will help you raise your next round at a much higher price from the corporate investors!" Yes, we will. We will give you a directory of people with more money than brains . . . and when you fail, we will do a down round to screw the other venture capitalists who didn't have the nerve to play in this one. We get more fun out of screwing over other venture capitalists than we do screwing over you. Hard to believe, isn't it?

Lie 10: "I want you to meet another of our CEOs. There's great synergy between the two companies!" As bad as you are, they are worse. Either we sell this turkey off or have to take a writedown. So you are elected.

Anderson is senior managing director of Yankeetek, a Cambridge, Mass., venture incubator. He is also chairman of The Yankee Group and the William Porter Distinguished Lecturer at the Massachusetts Institute of Technology. He can be reached at

handerson@yankeetek.com.

Read more of Anderson's Yankee Ingenuity columns.