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How do I deal with VCs?


#1

I have bootstrapped a SaaS business that’s now at 15k MRR and growing around 10% every month. I run the whole operation myself, with the help of a part-time customer service contractor. Currently, my intention is to keep growing organically and build a nice lifestyle business while I raise my kids.

Lately, I’ve been approached by some VCs at least once a month. I’ve talked to the first couple, but now I’m mostly ignoring them. Let me explain why:

Suppose I have a SaaS for lawyers (it’s not). My SaaS helps them with a small part of their workflow, but it does it in a way that none of the big players do (or do well). It’s something they have overlooked and I took the opportunity to make it better.

The last VC that contacted me is in the board of one of the bigger players in this space. This makes me nervous, because it wouldn’t be too hard for them to just copy everything I did and include it in their product.

I don’t know what to do in this situation because I don’t want to sell or take any funding for now, but I don’t want to close the doors. I also think they’ll be asking all these questions about my business that I don’t want to answer, given the conflict of interests.

How would you deal with this?


#2

I suggest ignoring these enquiries. They are a distraction. Sometimes they will just be the VC’s new hire on a fishing expedition, and not a serious enquiry.

The longer you have a visibly successful business, the more frequent you have people cold calling you in general. It seems rude to ignore people, but I think it is a rudeness one needs to develop when running a successful business.


#3

In that case, you almost certainly don’t want to be talking with VCs.

I suggest you politely reply something along the lines of “We aren’t interested in taking investment at present. We’ll get back to you if that changes.”. Then forget about them.

You might also find this article I wrote useful:


#4

Are you open to revealing what your startup does? That would help with answering the question…


#5

The last VC that contacted me is in the board of one of the bigger players in this space.

Relevant video for you: https://www.youtube.com/watch?v=JlwwVuSUUfc

Edit: On a more serious note, don’t worry about the competition. I compete with a company with 52 million USD in funding, and the fact that I can run my company with just 2 people compared to their team of 160 means I can charge my customers 15 USD / month for what the competitor wants 900 USD / month for (with annual contract requirement to boot).

Trust me they are scared of you as well, it’s why they contact you in the first place. Your ability to run the business on your own means you will win any price war so they won’t go there. If they copy all you got and add more then simply become the fast follower in your space. It’s a valid business strategy.


#6

They’ll certainly copy you! A lot of things in Zendesk are surprisingly similar to HelpSpot… Especially towards their beginning. That’s just how it goes.

Anyway, if you do talk to a VC never bother with associates. Anyone serious will always be a partner. So ignore all non-partners that’s just crap.

Partners I would maybe give some more consideration to. I think it can be worth taking the call and having a conversation just to build that relationship. You can let them know you’re not interested in the call, but never know where that connection may lead. For example, in the example you give maybe that company wants to expand into your space and now you have a connection with them. Perhaps this VC says I talked to these guys, they’re alright, I like what they’re doing, you should just buy them instead of building it out yourself.


#7

Interesting timing - just read this very relevant post an hour or so ago:

TL;DR you should generally ignore them and not respond. Unless they are definitely a decision-maker and active in your space and you’re interested in taking on investment.


I don’t want to sell or take any funding for now, but I don’t want to close the doors

In that case you should definitely not reply to them (as per the k9 post’s advice) - gives plausible deniability to not close doors down the road.


#8

+1 for just ignoring them.

A simple way to Vet them (if you would seriously consider a purchase) is to ask:

How do you think you can increase the value of my company by purchasing it?
(Hint: The answer is NOT: “we have a lot of money”. If you put $1 in and get $1.20 out, you can pump money in all day long).

If they can’t increase the value of your company by buying it then either:

  1. They are paying less than it’s worth
  2. They are paying more than it’s worth and they are stupid.

-Clay


#9

Thanks for the replies. I feel less guilty for not getting back to them. I knew it was the right thing to do, given my goals, but I was feeling like I might be losing an opportunity.


#10

You are under no obligation to respond to (what appears to be) a cold call.


#11

Although I never took any money from any VCs, I have had relationships with many and they are good resources to have. (My last venture was a company called JCMB and we had up to 160 employees at one point… ).

Now, I look at every one that approaches me with business in mind. Naturally, you want to push away those tire kickers… but I would be particularly interested in a lunch with the partner that is involved with my competition… In our cases, even though no investment was ever made, they helped by opening their rolodex and made some introductions… They are not all bad, they are looking for successes… and it is easier to make a deal when you have been dancing for a while… You can dance… you don’t have to kiss… lol

True, that the romantic view that a small and nimble guy can out smart the big bad ones is enticing, but I don’t buy it as a universal recipe to be applied to all domains. Now, there are many outcomes possible here, one of them is that you bail and take an early exit… and there is nothing wrong with that if it makes sense and your analysis tells you there is a risk of loosing the business if they decide to step in…(advice coming from someone who missed his exit…).

Personally, I failed to see my real place in the market… (GIS for Uilities…) and should have taken the money when it showed up…but I thought no, I am doing good…it will last for ever… lol and then a large company ate my nimble ass… Now your situation might be very different… but I would say don’t be attached to the outcome, just find your best business position in this…

Now an acquisition or share swap might be interesting… hear it out… but vet those who you let in close well…

All in all, what I am saying is don’t be too attached to your baby… you can always make more babies… businesses come and go… it is what we can make of them while we have them (and sometimes the best is to let them go… lol )…

Just my 2 cents…