Decode the VC Dictionary Before Your Next Raise

0:02 Cheryl Mack: Founders scale faster on Deel.

0:04 Maxine Minter: Set up payroll for any country in minutes. Hire anyone anywhere. Get visas handled fast and get back to building. Visit deel.com/dayone. That's d-e-e-l.com/dayone. To make things more complicated, we just like shorten it. So like valuation, we go like val. And you're like, who the fuck is val?

0:31 Cheryl Mack: Right.

0:32 Maxine Minter: And then due diligence, we shorten that to due dilly, and you're like, dill pickle?

0:37 Cheryl Mack: No one calls it due dilly.

0:39 Maxine Minter: Uh, yes, I have seen that.

0:41 Cheryl Mack: People call it due dilly?

0:43 Maxine Minter: Yes.

0:44 Cheryl Mack: What?

0:45 Maxine Minter: Oh man, there's even a podcast called the Due Dilly Podcast that helps financial advisors do due diligence on things.

0:52 Cheryl Mack: Oh God, give me strength.

0:56 Maxine Minter: Okay, so This is Welcome to First Checks 101 episodes. This episode is 101 with a little bit of a twist where we're gonna teach you something, I promise, but it's also going to be quite funny, mostly for us because we'll be making fun of ourselves and pretty much all investors, but also for the founders out there who happen to listen to this episode. We do appreciate you and this one is for you. We hope you enjoy it.

1:26 Cheryl Mack: I love in the prep for this, you were like, "So we have to be funny." And I was like, "I don't think." It's like peeing, you know? Like you just don't pee on demand. It just doesn't work. Like I can't be funny on demand. I would've felt like intense pressure to be funny. So prepare for terrible jokes and a lot of cringe, folks. Okay, we're gonna do this in 3 parts. So we're gonna focus on translating VC speak for founders and probably some angels out there as well. We're going to do it in 3 parts. We're going to start with the fundraising dynamic because obviously that is the one where a lot of this kind of pops up. Then we're going to think about the actual negotiation dynamics. And then lastly, we're going to talk a little bit about once we're working alongside them and they're in the tent, so to speak. So, Cheryl, you want to kick us off?

2:12 Maxine Minter: Let's get interpreting.

2:15 Cheryl Mack: You're listening to a Day One FM show.

2:19 Maxine Minter: Here's my favorite one. Uh, and look, I'll be honest, I'm guilty of this too, which is the like, it's not a good fit for us. And you, I've said it. Tell me you, like, you can't lie.

2:31 Cheryl Mack: Tell me you've said it. Oh yeah, yeah. Yes, yes. Like hundreds of times. It happens all the time. Yeah. It's not a good fit for us. You are not a good fit for us. The company's not a good fit for us. Fit, fit, fit.

2:41 Maxine Minter: But like how useless of a statement is that for a founder?

2:45 Cheryl Mack: Totally. I actually, well, oh, this is a bad one to start on because I don't know that it's that useless because fund theses are important, right? They are an important part of the filter. So what that actually means, let me translate for you. What it actually means is one of a range of things. Most likely it means that the company that you are building isn't a thesis fit for the fund that you are talking to. That might mean you are building a software business when they are a deep tech fund. That might mean you are building hardware when they are a software fund. So most of the VCs can't invest in hardware. They don't invest in deep tech or things that are particularly scientific. And so lots of companies just are not, in Vogue Commerce, fit for those funds. Then there is the version that is the company's not a fit for us on stage, right? You might be at the idea stage, for example, and you're talking to me or to Appreciate Invest or to Cheryl, but actually you are talking to someone who is way later down. So you said kind of idea stage, very, very, very early, but they want to see revenue and customers and all of those kind of things. So it's just not a fit for you on stage. The old adage, you're too early of that one is also what you'll hear in that circumstance. Then there is also the, you are not a fit for us.

4:05 Maxine Minter: Which is really like, we don't like you.

4:09 Cheryl Mack: I mean, in some circumstances, yes. It's also, we don't think that you are a fit for the company. We don't think that you are compelling in that category. And that's tough feedback to deliver. So what I've noticed is BCs just like bucket it all together. Sorry, like it's not a fit. And they don't have to distinguish it between the human. What is, yeah. And the company. But so it can mean anything in there. If you're feeling brave, you'll confidence is feeling particularly robust in that moment, I recommend you ask them, "Oh great, what isn't a fit?" Yeah. Is it the stage of our company, the industry you're in, or me personally? And if it's me personally, can you please explain that? Because that could be really helpful feedback.

4:52 Maxine Minter: In what world would you answer that honestly though? If a founder asked me, "If it's me personally, please explain why you don't like me personally." In no world am I replying to that.

5:04 Cheryl Mack: No, it's not necessarily personal, right? Like it doesn't necessarily have to be like, I personally don't like you as a human and so I refuse to invest in your company.

5:12 Maxine Minter: No, but like you're, you're basically saying even on your other examples, like I personally don't think that you're the right person to solve this problem, which is like, I don't like you for this company. Uh, your other example was like, I, I don't think that like you are like the, what was the other example you had?

5:32 Cheryl Mack: Compelling, right? Like, oh, I—

5:34 Maxine Minter: Compelling.

5:34 Cheryl Mack: Yeah.

5:35 Maxine Minter: Yeah. I don't think that you're compelling enough, which is like, it's still a version of I don't really like you.

5:40 Cheryl Mack: So all of those are still, you're not, you're not good. I would answer that question. If you ask me that question, I would. And the reason I would do that is because one of the first VCs I ever pitched for Fairshake said this. He was like, it's not a fit. And I had the cojones to be like, and you asked, what does that mean? Why not? You know? And he was brave enough and kind enough and/or cruel enough to explain it to me. And he was like, look, I just don't think that you are the kind of operator that's gonna build an interesting company.

6:17 Maxine Minter: Wow. Harsh.

6:18 Cheryl Mack: And I was like, I was like, "Oof. Okay, let's have that conversation. Why?" And he was like, "Well, lawyers don't generally build great companies, blah, blah, blah." And he explained it all to me and it was really helpful to understand his biases. Also, it helped me understand where I needed to be slightly different in the way that I can tell that story or highlight different profiles of all the things that I had done. I didn't have my best evening ever after that.

6:46 Maxine Minter: You went home and cried yourself to sleep.

6:48 Cheryl Mack: Yeah, it was really helpful information. So yes, I try as much as I can to be brave when someone asks me a question like that. So I would encourage you to ask the question so that you could try to get the information, not in an abrasive, rude way, but just like in a genuinely curious way.

7:04 Maxine Minter: On the flip side though, I think as investors we can be better at explaining, even if it is an extra one or two words in that sentence, like it's not a fit for us. Is actually a very confusing statement for founders, right? Because they're like, it being what? Fit meaning what? Us being you or the fund?

7:26 Cheryl Mack: Actually, the whole sentence, every single word you've just said is ambiguous. Yeah, exactly.

7:33 Maxine Minter: So like adding a few sentence or a few words into that sentence, I actually think would be really helpful. You could be like, we don't invest in fintech. Or we don't invest in consumers, so it's not a fit for us. Or like, and even if you didn't wanna deliver that hard feedback of I don't think you're the right founder for this, you can still add something to like, you're at the wrong stage for our fund is still a version of that that's way more helpful. What about the like, you are too early for us?

8:03 Cheryl Mack: Oh, this one I am at risk of ranting on. What do you think they mean? I'm gonna hold my tongue for a moment and let you go.

8:11 Maxine Minter: Look, I used to be a super skeptic on this one, and I always used to tell founders like, it just, it's just another way of saying no. They've said no, they say they'll look at it later, but really they won't. Like, you kind of do, do have one chance to make an impression. And, uh, and if it's, uh, you're too early, that's really just another way of saying no, or that like, we just don't have conviction in you. However, in recent years I have seen A couple that have come back and said, and ended up getting investment in their next round when they were like, it's, you're too early for us. And then it became not too early for them. So I still wanna say that like 90% of the time it's actually just another word way of saying no, we don't, we don't believe in what you're building. But like there's that like 5 to 10% of the chance that they actually mean you're too early.

9:06 Cheryl Mack: Yeah. And I, I think in that circumstance, this is probably a fit question as well, right? I think for a lot of founders, it means like we haven't done a good enough job of qualifying which investors to talk to. You know, like if you look at their portfolio and you look at the companies they're invested in, they're investing in Series A and you are giving them like pre-idea, a few dollars of revenue, like they're just not gonna be able to make that investment. But I think it, it really muddies the water 'cause— Yeah.

9:32 Maxine Minter: Well, what about all those VCs that go, it's never too early to come talk to us and then they're—

9:35 Cheryl Mack: Right, right. Except for right now. Then they're like, except for right now when you're too early, too old.

9:41 Maxine Minter: Yeah.

9:42 Cheryl Mack: Yeah.

9:42 Maxine Minter: We told you this would be a lot of bagging on VCs on this episode.

9:46 Cheryl Mack: Yeah. Also, I mean, increasingly for folks like us, you're too late for us.

9:53 Maxine Minter: True.

9:53 Cheryl Mack: So both in both directions, right?

9:56 Maxine Minter: I say that.

9:57 Cheryl Mack: Sorry, it's too far along. And that I think actually is even more confusing because I think it's fairly obvious right, for folks to be like, oh, you're too early for us. I.e., you are, there is too much that still needs to be proved. There's too much that, like still too much risk in it. But for most folks, when you're like, I'm sorry, you're just too far along for us, that's really like, what does that even mean?

10:23 Maxine Minter: I think that, I actually think that one's obvious. It's like, no, I invest early stage. If you've got $2 million in ARR already, like I'm over here for the huge risk.

10:33 Cheryl Mack: Like you de-risk that too much for me to get a good return. So no. Right. I think that, but that is the not obvious point, right? 'Cause if you are, especially in the Australian ecosystem, right? If you are out there operating, especially like early stage being, you know, everything really prior to product market fit, right? Prior to your Series A. Like so many people will tell you that's early, that's scary. That's, you know, that is early stage. But if you're talking to you and I, well, maybe me, you'll do seed and Series A, but like I won't. And, well, there's a lot of angels that won't do that. Right? They'll be like, sorry, it's too far along. Or it's not a good fit for me or something like that. And essentially what that means is they are assuming that your valuation is too high.

11:19 Maxine Minter: Or.

11:21 Cheryl Mack: It means that they have a particular thesis about a stage of risk, i.e., for us, right? We're not valuation sensitive, but we are most useful to you in that very, very early stage of making those like early product decisions, early customer decisions, et cetera. Like by the time you find a great customer with a great go-to-market and you are ready to scale, like I am dumb money on your cap table. I'm just hanging out there, hanging onto your coattails while you go and make billions. I'm not going to do that to you. And so for a lot of angels, if they're saying, sorry, you're too far along for us, it's like a product-market fit question. They're just selling a product or they're wanting to buy a product that is just a different product than what you're selling.

12:00 Maxine Minter: Yeah, 100%. I mean, I think that one's pretty obvious, but it helps when you explain it like that.

12:07 Cheryl Mack: Okay, so when you're in those fundraising conversations, right, what does it mean?

12:13 Maxine Minter: 'Let's have one more meeting.' Ooh, I don't know that one.

12:18 Cheryl Mack: I mean, if you've already had one or two meetings with them and they ask you for another meeting and then another one—

12:25 Maxine Minter: I think that one could go either way. Like—

12:27 Cheryl Mack: Okay. How would you interpret it?

12:29 Maxine Minter: I mean, the optimist in me would be like, you know, they wanna spend more time. They like, this is the last meeting of like, cool, let's have one more meeting for me to like tick box a few things. Um, but if I heard it twice, like the second time I hear one more meeting, nah. If, if you're getting that, then like they're just wasting your time. Unclear why, like this always baffled me. Um, the ghosting, like VCs ghost all the time and that, that one kind of makes sense. It's like, all right, you, you just deprioritize that and, you know.

13:00 Cheryl Mack: I'm not here for normalizing that. Like, don't ghost people. I— In any forum. But in ours, just like, just don't do it. Just like, I know it's scary to be like, I'm passing. Here's why. I'm probably wrong, but like, just don't ghost.

13:18 Maxine Minter: I actually think that a lot of ghosting at the earlier, like especially angel stage, is not a fear of passing, is more a, uh, like an indecision.

13:30 Cheryl Mack: Right.

13:30 Maxine Minter: Like I just didn't get to a yes or a no. And because I can't get to a yes.

13:35 Cheryl Mack: Which is effectively a no. Sure. But in my mind, so just send the, I don't have time. I'm sorry. I'm a constructive no, but I don't wanna say the word.

13:46 Maxine Minter: Yeah, I've, I've started saying that to a few founders, but there's been moments where I'm like, shit, it's been 4 weeks and I still haven't got to a yes or a no. Which they've hopefully just assumed is a no.

13:58 Cheryl Mack: But I just think it is so valuable just to close the loop, even if you're like, "Hey, by the way, I'm passing," and they're like, "Yeah, man, I didn't want you on my cap table anyway. Why are you saying I pass on you?" But I still think it is a helpful thing to kind of close that. But I do, when I hear the kind of continual next meeting—

14:21 Maxine Minter: One more meeting.

14:23 Cheryl Mack: Next meeting.

14:24 Maxine Minter: What does it mean?

14:25 Cheryl Mack: Right. Probably after 2 or 3, unless it's, you're in like deep diligence with a big fund, then it probably means I'm on the fence, right? I want the optionality to invest if I can get to a yes, but I'm on the fence.

14:40 Maxine Minter: Or that like, I'm waiting for someone else in your round to pop up and be impressed by them. So like, let's have one more meeting. Who else do you have?

14:51 Cheryl Mack: Right.

14:51 Maxine Minter: That might be like the first question that comes up is like, who else do you have in the round? Oh, no one good yet? Okay, let me ask you a few questions. We'll kick this down the road.

15:00 Cheryl Mack: Let's have, oh, let's, oh, you're coming back to, okay, let's have one more meeting.

15:03 Maxine Minter: Who you got?

15:04 Cheryl Mack: Right, exactly. So, they're keeping close. They're like wanting to keep touchpoints on what you're doing, what you're building, but they're not yet at conviction. So, if you're in that situation and you're trying to catalyze them into conviction and/or there is genuine time pressure for them to make a decision, make sure it's, you tell them, right? I.e., we are closing the round X date or construct that momentum for them. Let them know as people are committing to the round to help build them onto the other side or ask them directly, right? What would be required for you to get to a yes here? Like, where do you, what do you need to know for you to get to a yes or a no, right? Either. Because I find those, let's have one more meeting, is like death by a thousand cuts.

15:48 Maxine Minter: Yeah.

15:49 Cheryl Mack: For founders. Like if you are maintaining 15 angels in your funnel or like 15 funds in your funnel and they're all like next meeting, next meeting, next meeting.

15:58 Maxine Minter: That gets a lot.

15:59 Cheryl Mack: That's just a big old waste of your time. That's a lot.

16:02 Maxine Minter: Yeah, 100%. What about all the ones that are like, you know, we're, we're discussing it internally or, you know, we'll circle back after we do more diligence, or we're, we're just having some more discussions, or like, we're gonna do this at the next IEC meeting. There's a ton of that out there, right?

16:19 Cheryl Mack: A ton. Yeah. I would put that all into the same category of like, we're not at a heck yes, right? We're not at a heck yes yet, or we're not at a heck yes. Or that's if you've got kind of single decision maker situations. So like small funds, angels. But for a lot of that stuff, that's internal coordination. And I think it's worthwhile reminding that investors or, or working with a VC who's investing out of a small fund or a single decision maker dynamic is kind of like an SMB sales motion. You just have to convince one person and they'll sign on the dotted line and start using your product. Whereas selling to bigger VCs, it's like an enterprise sales motion. You have to convince the first investor that you speak to.

17:02 Maxine Minter: Multiple stakeholders.

17:04 Cheryl Mack: Yeah, exactly. So like the associate or the principal that you speak to who then has to convince a partner and/or you might need to convince the partner. And then that partner then needs to convince their other partners and sufficient number of those partners to get to yes. So it probably depends on the context that you're in, right? If someone's like, oh, I need to speak to my people, but they are the only decision maker. My people need me. Like not a good sign. Whereas if they are, you know, investing out of a 7-partnership fund or 7-partner partner fund—

17:37 Maxine Minter: And they say, I need to talk to my people.

17:39 Cheryl Mack: That's what they mean. That's probably legit. They are literally talking to their people.

17:43 Maxine Minter: At the same time though, we've all seen those deals that the VC turns around in 3 days. So I think we can like—

17:50 Cheryl Mack: I've done 'em.

17:50 Maxine Minter: Also say that like, if they're delaying things, it probably just means that you're not a priority. And at that stage it's like, well, either discount that and say, okay, cool, we're not a priority for this fund, or figure out how to make yourself a priority, which is often harder to do.

18:09 Cheryl Mack: 100%. I will also say that I think, like I know in the ZIRP era there was this whole like momentum raise, make it feel like it's scarce, et cetera. And so you had people stepping into market being like, we're in market for 7 days. Like you You gotta sign on the dotted line and wire immediately kind of thing. That is no longer the case.

18:28 Maxine Minter: Yeah.

18:28 Cheryl Mack: And so if anyone is listening to this and thinks, and like saw that dynamic in 2021, 2020, 2021, 2022, like it is just a sign of being out of touch if you try to do that today. So I would also say that there are a bunch of circumstances where like investors have to go through their process on the investor side to explain out the kind of investor side of it. Is they have contractual commitments with each other as investors if they've got a multi-partner fund, and then contractual commitments with their investors, their LPs, on what they will do to diligence a company. So if you say, I will give you 7 days to diligence this company and they can't reasonably get through this process, then they're just going to pass because it's going to be, they won't be able to do it. So I think try to find a way to make yourself more relevant, but also even if it takes them 2, 3 weeks to do their proper diligence and kind of get to that heck yes moment, that doesn't mean they're any less excited about you. It does, but it can just mean that there's a lot going on or they have to go through their, their process. This is especially the case if you decide to raise around peak moments. Yeah.

19:37 Maxine Minter: Like June 30th.

19:38 Cheryl Mack: In the ramp up to end of financial year. Yeah. Like savage time.

19:43 Maxine Minter: What is that though? Like, can we just bag on founders for a minute on this one? Like guys are all setting this artificial deadline of June 30th, there are very few scenarios where it actually makes a difference whether the money is in your bank on June 30th or July 1st. You're just making our lives difficult for all of June.

20:00 Cheryl Mack: Right. Also, who you are in a lot of circumstances, investors will pass because they just don't have the capacity or diligence. You are like unnecessarily creating a competitive dynamic for yourself that doesn't need to exist, right? If you go into market in like July, or August in Australia, not in the US, like that is, people will take the time to really understand your business and get super excited about it as opposed to the version where they're like, sorry, I can't look at it because I'm already trying to diligence 6 other companies and I've got companies doing transactions and you know, it's just, it's not pretty inside of VCs between June 1st and June 30th.

20:38 Maxine Minter: It really is not.

20:40 Cheryl Mack: Or in the US between, kind of November 1st and Thanksgiving, when whatever date that falls on, or the end of year. Like, just don't try, try and close your transactions in those periods of time. It just is an unnecessary compression on everyone.

20:59 Maxine Minter: Yeah.

21:00 Cheryl Mack: Anyway, that's for us. That wasn't for you. So, what about this whole idea of conviction, right? This is actually a jargon word that we use a lot in VC.

21:18 Maxine Minter: Yeah, we've just invented this word and it act— like, I don't think it means what we have used it for. We just like pull the word from somewhere, decided it meant something else, started using it with founders and didn't ever explain it to them.

21:32 Cheryl Mack: Right.

21:33 Maxine Minter: In any other scenario, we would be the assholes.

21:35 Cheryl Mack: Yeah. I think mostly investors are the assholes in most of these situations. Am I the asshole? The answer is yes. So what does it mean if someone says, I'm still trying to get to conviction, I'm trying to build conviction, we are trying to get to conviction, we're not yet convicted that, or we are convicted that. What does that even mean?

21:57 Maxine Minter: That we like to use jargon and confuse you. Just kidding. No, I think we like this gibberish word because it because it's more abstract and it allows us to like assign us, assign its own meaning. But generally we mean that like, we, we're not there yet. We're, we're not convinced that you are the thing that we want to invest in yet. We're not convinced that, uh, your market size is big enough or that you're the right founder for this. Generally though, when we talk about conviction, it's usually in sentences where we're like working, we're actually trying to get there. So, I often will say like, here's the next step that I need to get to conviction. It's these 3 things. And so, I need to go deep on these 3 things. So, if they're using the word conviction with you, I'd say like generally that's kind of a good sign. Would you agree?

22:48 Cheryl Mack: Yeah. I, well, mostly. I wouldn't say categorically, right? Because sometimes I think, I think it is a piece of, it is a jargon word that VCs use. To abstract the experience of being irrationally in love with a business, a founder, a combination of those things, or a market moment, right? It is this kind of hypothetical and very rarely real moment that you go from a no to a yes. Like it assumes this switch that's like all of these reasons why I wouldn't, to, I'm going to, but actually in reality it's a continuum, right? There's no like hard switchover. So what it means is I'm still in my process of getting to that critical mass where I can do the deal. But I sometimes will say, you know, I'm just not convicted that ABC, but what it actually means is that I don't agree with any of those, like, and maybe core assumption that sit behind your business.

23:50 Maxine Minter: Right?

23:51 Cheryl Mack: Very often, you know, I just don't have conviction that this customer will buy in this way or those kinds of things. And so, I, it sometimes can mean I'm not investing because I'm essentially telling you I don't believe.

24:01 Maxine Minter: Yeah. When you're using it in that sentence, you're like, no, I didn't, I didn't get to conviction.

24:06 Cheryl Mack: Sure.

24:07 Maxine Minter: Yeah. But if you're still, if you're before the no and using it and hearing it, then it could be a good sign.

24:12 Cheryl Mack: If there's no negative term in the sentence, you're, it's good. Yeah, you're like working towards completion. Yeah, exactly.

24:21 Maxine Minter: Oh man, what about all the things that VCs say that are like, we wanna keep optionality here. It's like, you know, keep us in the loop or we love what you're doing.

24:32 Cheryl Mack: Yeah, I mean, as we are running through these, my overall takeaway is investors are just like trying to wait, but you're just maximizing for the money value of time. They're waiting and waiting and waiting until they absolutely have to make a jumping— Make a decision.

24:50 Maxine Minter: Yeah. Or let us know when you have a lead.

24:53 Cheryl Mack: Yep. That one's slightly different. But so I think the ones that are like, keep us in the loop with what you're building.

25:01 Maxine Minter: We love what you're doing.

25:03 Cheryl Mack: Et cetera.

25:04 Maxine Minter: We'd love to support in non-capital ways.

25:07 Cheryl Mack: Yeah. That's just a no. That's a, we wish we could invest in everything because we would love to be involved, but we can't. And so we're gonna sit on the sidelines and cheer for you. But I think they're like, we are like, we wanna stay in touch. Sometimes it genuinely, that's what it means. It's a reference to the top of like, you know, it's not the right fit for us yet. You're too early. right? They wanna stay in touch because there are some investments that are, they're not obvious or they can't be done too early in the journey. But once you get some traction points, then it becomes more obvious. You've de-risked it enough that some of these investors will then come in and invest. I think if, if an investor is saying to you, so I think there is a world where if you hear any of those things, what it means is I wanna stay close. I wanna build more information to get me to a yes.

25:59 Maxine Minter: Conviction.

26:00 Cheryl Mack: Build me to, into conviction.

26:02 Maxine Minter: But probably not this round.

26:03 Cheryl Mack: But probably not this round. Or it means, as you said, I'm not in a position to lead. I either am not convicted, like crazy in love with this business and therefore going to lead this round, but I'm willing to come in if someone else that I trust comes in and I trust their taste, although I have some opinions about that.

26:23 Maxine Minter: I might, if someone else that we trust is in, then we might FOMO in at the last minute. Is really what they mean.

26:30 Cheryl Mack: Yeah, that's, yeah, that's essentially like, please go and create FOMO for me and then I may invest.

26:37 Maxine Minter: Yeah. And possibly be mad that there's not enough allocation for me when I decide at the very last minute, 3 minutes before you're due, like your deadline and your round is 95% full.

26:48 Cheryl Mack: Right, right. That's, that's the moment that I really want to invest when it is least convenient.

26:54 Maxine Minter: And I want you to make more room in the round so I can fit my full check size in.

26:58 Cheryl Mack: Yeah. Yeah. It's a no-go for me. So yeah, sometimes that, that is what it means. Um, but if they're saying like, we'd love to support in non-capital ways, it either means they have no capital to invest.

27:10 Maxine Minter: Yeah. It could mean like, we're, we're, we, we're, we don't have any dry powder right now.

27:15 Cheryl Mack: Yeah.

27:15 Maxine Minter: But they're not gonna say that.

27:16 Cheryl Mack: No.

27:17 Maxine Minter: No VC fund is saying that.

27:18 Cheryl Mack: They're not gonna say that., but they, they might not invest, not because they don't want to, but because they can't. They've got no capital to invest at the moment. I had a horrifying realization. I was, um, on a webinar recently with the Pitchbook team and according to their data, only one fund was closed in 2024. No, 2025 so far in Australia. One. Not good. Damn.

27:44 Maxine Minter: Damn. As in one new fund?

27:46 Cheryl Mack: Or like new fund, but not new brand.

27:50 Maxine Minter: Right.

27:50 Cheryl Mack: I suspect that is maybe Airtree. Well, actually, and maybe Airtree's not closed yet, but anyway, I think it was very possible that what they're saying is we don't have any dry powder. Like we've got nothing to invest, or they're saying that they're not going to invest because you're not a fit. They're not convicted.

28:07 Maxine Minter: Wait, it just pulled in all the jargon words, Maxine.

28:09 Cheryl Mack: We're trying to— All the jargon. Yeah. We're trying to use less jargon. Refer above, list of jargon. Okay, so that's the fundraising process.

28:19 Maxine Minter: Negotiating.

28:19 Cheryl Mack: You have a term sheet, you're in negotiations. What are some stuff you're gonna hear from investors that makes absolutely no sense?

28:26 Maxine Minter: Oh man, just, I think all the terms, right? Like the terms we come up with, you're like, I basically need a thesaurus for this.

28:35 Cheryl Mack: Totally. Yeah. I think we've actually done quite a few episodes on like round construction, steel docks, those kinds of things. So I recommend listening to those if any of these terms sound like jargon to you, right? Valuation, dilution, ownership targets, pre-money cap, and post-money cap. I'm going, I'm going for it.

28:59 Maxine Minter: SAFEs.

29:00 Cheryl Mack: Keep going. Convertible notes, cap tables, liquidation preferences. Anti-dilution, pro rata, ratchets, most favored nations, option pools. I think that's it. Board seats and observer rights. If any of those sound like jargon to you, then I recommend scroll down on our list of podcasts and there's a bunch of 101s on basics of deal construction, which hopefully will answer some of those questions.

29:25 Maxine Minter: And then to make things more complicated, we then go and like create silly versions of those words.

29:32 Cheryl Mack: Where we just like shorten it or completely make up a new word to represent that.

29:37 Maxine Minter: So like valuation, we go like val, and you're like, who the fuck is Val?

29:41 Cheryl Mack: Right?

29:43 Maxine Minter: And then due diligence, we shorten that to due dilly and you're like, dill pickles?

29:48 Cheryl Mack: No, no one calls it due dilly.

29:51 Maxine Minter: I have— Uh, yes.

29:52 Cheryl Mack: People call it due dilly?

29:54 Maxine Minter: Yes.

29:55 Cheryl Mack: What? Australia, you've gone too far. It's too far.

29:59 Maxine Minter: No, no, I'm pretty sure that's in the US. I've heard.

30:02 Cheryl Mack: I have never— I can you just, just for a moment picture a sweater vest saying "do dilly," like a very serious, earnest person wearing like plaid shirt and puffer vest with Patagonia on it saying the words "do dilly" non-ironically. I can't.

30:21 Maxine Minter: Yes.

30:22 Cheryl Mack: Those two things are like not Hungrous in my mind. Oh man.

30:27 Maxine Minter: There's even a podcast called the Do-Dilly Podcast that helps financial advisors do due diligence on things.

30:33 Cheryl Mack: Oh God, give me strength. Okay. I remember—

30:36 Maxine Minter: And then there's another one for like dilution that, uh, I can't remember at the moment.

30:41 Cheryl Mack: I, I am trying to think of, maybe I'm just too prim and proper to be using any of these jargons, but I've never come across anyone abbreviating in this way, but good to know if it's val, valuation, if it's due dilly, small vomit in my mouth, what they mean is due diligence. And also consider not working with that person.

31:03 Maxine Minter: I mean, we use val.

31:05 Cheryl Mack: True, we do use val. Due dilly, due dilly is the only thing that I'm taking issue with here. One thing that we did forget to talk about though is information rights, and this one can be a little bit confusing. Especially for angel investors. So I think this is one worth calling out. When we talk about information rights, actually it is a defined term in these contracts and it usually only means information like financial reports, sometimes only yearly, and usually means kind of major changes in the business. Usually it's only major investors get it.

31:41 Maxine Minter: Yeah.

31:41 Cheryl Mack: So most people, if you're investing in a company, and we talk about this a lot on this podcast and investing to learn, just because a company is giving information rights, it doesn't necessarily mean that you'll have them. And it's not the same thing as an investor update. An investor update is much more nuanced. It usually has a lot more kind of commentary to it, and you almost never see it contractually agreed to. In fact, I don't think I've ever seen it contractually agreed to in a SAFE 1 and 2 docs.

32:08 Maxine Minter: I would almost want to put in the investor updates, like I would like that to be contractually obligated.

32:15 Cheryl Mack: Yeah, it's an interesting one. I mean, I think if you're a founder, it's a lot to pull together every single month. I think it's really valuable to do, but I respect on the founder side, like, oh, monthly, no, but like quarterly, that's doable. I think it's really valuable to do even, even monthly. Like I think even just like a light investor update, if you're tracking your business pretty closely, which hopefully you are, like you should be able to report kind of key updates. But like we do quarterly updates as a fund and like they are, they're a time investment to put together and make sure that the right information is flowing through. So I don't know, I don't know that I would encourage founders to contractually agree to doing investor updates. No, we shouldn't, but I want it. But it would be great. It'd be great. Yeah.

32:58 Maxine Minter: All right. I got some more for you, Maxine. I asked the, the chatty, uh, some others.

33:04 Cheryl Mack: Chat, J-T-P. Yeah.

33:08 Maxine Minter: Uh, so some others apparently were calling them foundies, baby talk for founders.

33:13 Cheryl Mack: What? Uh, Cindy, which is syndicate, Bridgy for bridge round. This is only in Australia, right? Where we put IE at the end of every single sentence.

33:25 Maxine Minter: Like That's a thing that we do, but—

33:28 Cheryl Mack: Oh, every word?

33:29 Maxine Minter: But this, I didn't, I didn't filter for Australia. I just said, what are some weird, silly VC jargon that we tend to use?

33:37 Cheryl Mack: I think what you're looking at is one giant hallucination and no one in their right mind would ever use any of these terms.

33:45 Maxine Minter: I guarantee if I search on Twitter, I would find this.

33:48 Cheryl Mack: Oh, you're probably right. I still would like to live in the bubble where we haven't descended to that depth yet. Okay. So that's in the, in the round negotiation. Is there anything we haven't covered in round negotiation other than fairly complex legal terms? Oh, ESIC, ESVC LP are both terms that can come up in round negotiation. What it means is on the fund side, ESVC LP is a structure that funds use and they have a tax implication and ESIC is a tax beneficial categorization that you get as an early stage company, which allows your angel investors to, and investors through funds, in some funds, to get a certain amount of write-off. We also have done an episode on this, so have a look at the one that's about the 101 on taxes, which is, and then just skip to the bit on ESBCLP.

34:42 Maxine Minter: Yeah, read that one. We also cover a lot of these deal terms and fund structures in the Angel Academy course that we run through Aussie Angels. So if you want to go deep on any of these and really understand what it means when founders are talking about them as an angel investor, I would encourage you to check out Venture.Academy. One other thing we forgot to mention is we do see this with VCs saying things like, oh, let's just let the lawyers sort it out in that negotiation phase. I think that either means like we don't actually care about this term or we think we have better lawyers than your lawyers.

35:20 Cheryl Mack: Yeah, we wanna fight about it, but we don't wanna fight with you about it. So I'm gonna delegate this fight to my lawyer. I'm gonna let them fight your lawyer and then you are gonna pay for it. That's what that means.

35:33 Maxine Minter: Yep.

35:35 Cheryl Mack: And I think, I mean, I would say mostly the important terms for investors are in your term sheet. So if they're saying that about a topic that doesn't appear in your term sheet, they probably don't care about it. It's in the category of like, meh, we don't care. It's not material for us. Yeah. Let the lawyers sort it out. Yeah. If it is in your term sheet and they're saying let the lawyers sort it out, it might be something that fits into that second category you talked about, which is like, we're gonna let that brawl so that we don't damage our relationship with you to try and line that up. Yeah.

36:06 Maxine Minter: And it's usually not a good idea to let the lawyers fight it out because that just racks up fees, right?

36:12 Cheryl Mack: True. Well, I don't know. I think there are some that it's valuable to let the lawyers have that fight, 'cause they can kind of go at each other and/or like push quite hard on each other. And then you as a founder don't have to expend social capital with the investor. I will say, just as a side note, negotiating your round with investors is, just to kind of name it, is this weird moment where most of, ideally most of the company's life, it's gonna be you and the investor on the same side of the table. Right? Pushing, trying to grow this company.

36:46 Maxine Minter: And for this one, like, 2-week period, you're not on the same side.

36:50 Cheryl Mack: No, you're on either sides.

36:52 Maxine Minter: When they just said yes to you too.

36:54 Cheryl Mack: It's, yeah, it's weird. It's also right at the beginning of your relationship. And so it can be thorny, you know? And so I think as you are in that negotiation dynamic, make sure that you are fully educated and you feel like you have the information you need to make those calls. But also remember in the grand scheme, things, like a lot of these micro terms, the stuff that is not on the term sheet probably isn't going to matter enormously. And so it doesn't make sense to go to the mat to try and negotiate this stuff out. And in those circumstances, great if your lawyer wants to go to the mat, if they really want to, and they want to do it with the lawyer, but not with the other side's lawyer, but not necessarily with you. Okay. You have now closed your round.

37:35 Maxine Minter: You've negotiated terms. You're both somewhat happy with them.

37:39 Cheryl Mack: Yeah. Micro happy with them. And now you're working with investors. What are some of the terminology that comes up? All the jargon.

37:47 Maxine Minter: Oh, I mean, like, I think a lot of it is like investors wanna know how you're doing to a degree, like understand that they just invested and you want to put your best foot forward. And so there's this like a little bit of a conflict, I think. Especially more so in Australia where there's more conflict-averse people, some of those tough conversations are harder to have. So, I hear things like, you know, VCs will be like, "So, like, can we get an update?" Which really means like, "We haven't heard from you and we're worried your company's not doing well and we just made an investment." Right, yeah, yeah.

38:24 Cheryl Mack: Or, "You haven't talked to me for 6 to 12 months, like, what's going on?" What's going on? Or we've heard something about it around the traps and we're nervous. Or our LPs, if they, you're talking to a VC and they've got investors, our LPs are asking about this and we don't have a good answer. So essentially like I feel out of the loop and I'm nervous about that. And so I'd like you to put me back in the loop, pretty please. Yeah.

38:52 Maxine Minter: Then there's the other ones of like, it's usually later in the relationship, but it's like, they're trying to scope out whether they should write you down or not because you haven't been growing enough or at all. And so they're like, hey, could we get an update? Like, what's your runway burn numbers?

39:11 Cheryl Mack: Right. I think that's an important one, right? So investors are probably gonna ask you along the journey, or you are gonna be telling them by your investor updates, right? How much cash you have left in the bank, what your burn is. And so if they're asking questions about your financials, they are either really excited about how you're doing or nervous. Mostly they're nervous.

39:32 Maxine Minter: Yeah.

39:34 Cheryl Mack: And so especially if it's a situation where your VC or your investor, you're hoping that they're going to follow on, right? Keeping them in the loop and keeping them excited about the business is super important. And so making sure that they have that information really back So if they're asking you questions like, "Can we get an update?" It's a great indication that there's more work for you to do to more proactively communicate. Also, then you don't have to have awkward verbal conversations with them about the state of your business. You can just send them updates and that will kind of update them along that journey.

40:04 Maxine Minter: See, another vote for regular updates.

40:07 Cheryl Mack: Yes, it is. I mean, I would actually, I was just about to make that point that I sometimes hear founders fall into the trap of only updating investors or thinking that they should only be updating investors when they've got like exciting news. So they don't want to write updates where what they're, what they're telling investors is, doesn't feel exciting or doesn't feel good enough or doesn't feel like they have hit the metrics that they were supposed to hit or they're pivoting or it's not going in the direction that they want to go in. For the vast majority of investors who are seasoned at this, that's not a surprise, right? Like for most early stage investors, you fully expect 50% of the companies you invest in to go to zero, whether that's in, and actually graduation rates from pre-seed to seed on average is about 50%. So that means in that first 2 years, 50% of those companies are gonna go to zero or thereabouts, right? It is also a graduation rate.

41:02 Maxine Minter: And we're expecting that.

41:03 Cheryl Mack: Right, we're expecting that.

41:04 Maxine Minter: But we're also expecting to like be kept in the loop along the way.

41:08 Cheryl Mack: Like, right.

41:09 Maxine Minter: I've been asked all the time, it's like, well, how do you feel when a company fails and you're like, shit, that investment just went to zero? I'm like, I like the fact that I lost the money, neither here nor there. What changes my perspective on that is how the founder communicated throughout the process.

41:24 Cheryl Mack: Mm-hmm.

41:24 Maxine Minter: Like if they communicated throughout the process and I feel like they did their, they put their best foot forward to try to like find product market fit and told me about what was going on the whole time, then yeah, cool. If there's any money left, send it back. If not, wrap it up, go find something else. Like, pay me when you're on the next one.

41:44 Cheryl Mack: 100%. Yeah. And I think that this is a misconception that I hear from a lot of founders. So I think like if you're listening to this and you are in the boat where you are not communicating enough with your investors because you're nervous that you're not, you don't have anything good to say, I'd actually encourage you to just set a communication cadence once a month, once a quarter, and just communicate where the business is at, right? Keep them in the loop. And it might, I mean, I know the fear is that you might get a couple of tough questions or a couple of questions that are, you know, curly to answer, but it will often make you kind of shed a new light on your business. It might even kind of help you solve a particular problem. And ultimately they're investors, right? They really want to help. They want to accelerate you. And so hopefully it also surfaces smoke shoes, they can accelerate you.

42:28 Maxine Minter: What about, what do they say when they don't want to lead your next round?

42:32 Cheryl Mack: Oof.

42:33 Maxine Minter: Or follow on?

42:35 Cheryl Mack: Well, ideally they just tell you, we are not going to be investing. But they don't. But often they don't.

42:42 Maxine Minter: Come on, that would be silly, Maxine, if we just said what was true.

42:45 Cheryl Mack: That would be silly. So often they will want you to pitch them in the way that you pitched your first round with them. And so you will kind of take them the investment or take them the thing that you are building and pitch them and they will go through that process. What you often see, especially if they're not on your board or you don't have regular touchpoints with them, is it will be a more kind of performative pitch process ahead of a more formal raise. Ideally, you're stepping into market with a term sheet with your existing investor, but if that doesn't happen, then you know, you're running your process regardless. But often they will say to you, great, looks like there's some interesting traction. Would love to learn more. What it means is it's not an obvious yes for us. We actually need to build into conviction. There it is again. Or it might mean I have a big partnership that I need to bring on this journey for me. And so I need to go through that process regardless of whether I'm really excited about this.

43:42 Maxine Minter: They'll also sometimes will say things like, oh, I'd like to see your revenue get to here. And then you're like, okay, yeah, cool. Go back, get your revenue there. And then like, yeah, but it's 3 months later now, so the revenue needs to be here now.

43:56 Cheryl Mack: I really hope that this isn't happening as much as it was in the ZIRP era. It probably is still happening quite a lot, but I think that was particularly bad. Like a lot of what founders heard from investors was grow, grow, grow, operate like my money is free, cuz it was, it's unlimited because it kind of was.

44:16 Maxine Minter: Yeah. Why aren't you growing? Grow faster.

44:18 Cheryl Mack: Grow faster. Grow faster.

44:19 Maxine Minter: Spend more money.

44:20 Cheryl Mack: And then somewhere between, you know, November 2021 and March 2022, it was like, hey, where is your profit? And you're like, I reinvested it all because that's what we were doing. That's what you told me to do.

44:34 Maxine Minter: You wanted me to grow, right? And they're like, what? No. Now you need to get profitable like yesterday.

44:39 Cheryl Mack: Right. So I think a bunch of things that you'll hear from investors in this category are like, your revenue should be X, your growth metrics should be Y.

44:47 Maxine Minter: You should be close, you should be 6 to 12 months out from profitability.

44:50 Cheryl Mack: Yep. You should be stepping into market with 12 months of runway. All of these are ballpark benchmarks they are hearing in the market for the rounds that they're seeing. But the reality is the distribution of revenues per round distribution of growth metrics per round, the distribution of kind of LOIs signed by round, feature completeness by round. It is extremely wide. And so for every rule of thumb—

45:21 Maxine Minter: Very opaque.

45:22 Cheryl Mack: Yeah. There is a million different examples of counterexamples against those benchmarks. So what it often means is you aren't currently sitting at the top of the pack of the companies that we are invested in. And as your company is growing, other companies are growing too. And so those metrics are constantly moving. So what can you do about it? I think you can ask them, what does, what are the best companies in your portfolio look like revenue-wise, growth-wise? What makes them really exciting?

45:54 Maxine Minter: And then benchmark to that instead.

45:57 Cheryl Mack: Benchmark to that.

45:58 Maxine Minter: That makes sense. But as VCs, we're like, no, no, we'll just set a line in the sand for you. We might change that line later, but here's the line.

46:05 Cheryl Mack: Here's the line for now. This afternoon at 3:01 PM, this is the line. If you wanna raise at 3:02 PM, it's moved. It's moved.

46:15 Maxine Minter: It's, oh wait, oh, it moved again.

46:17 Cheryl Mack: Oh, let's look at that. What about in terms of team dynamics? What do you hear from investors in terms of team dynamics, in terms of what you are seeing across the team? That is a red herring.

46:33 Maxine Minter: I don't understand the question.

46:34 Cheryl Mack: Oh, okay. So, Jarvan, I hear from some investors or questions I hear from some investors, how's it going with X? What does that mean?

46:42 Maxine Minter: X being a person, team member?

46:44 Cheryl Mack: A team member, yeah.

46:45 Maxine Minter: Ooh, that probably means that I heard through the grapevine that X may not be happy or that another company might be trying to poach X.

46:55 Cheryl Mack: Potentially. Also, right, I'm not sure from my interactions with X, if they've had interactions, that they are the right talent bar for you, right? That they are solid enough for your team, or maybe they're picking up dynamics between you and that person, if it's a co-founder or a senior team member, that they are pattern matching to something. That is not working. So, really valuable for you to ask why before answering that question. Well, no, I think you can, I mean, depends on how cagey you wanna be about the information. I would encourage just to answer truthfully, but recognize that doesn't always operate or doesn't align to the way that people approach this. So yeah, it can be worthwhile to collect more information.

47:39 Maxine Minter: I think in those situations though, if I've ever asked that question, I'm not KG as an investor. I'm generally like, how's it going with X? Whatever your answer is, I'm gonna tell you why I'm asking anyway. So, you're gonna find out immediately what I meant.

47:54 Cheryl Mack: Yeah. You are just about to learn why I care. But it can be really helpful to understand why that might be coming at you. Yeah. Yeah, yeah, yeah.

48:03 Maxine Minter: What else?

48:04 Cheryl Mack: I think that's it for me. I'm trying to think if there's any other jargon. Please let us know if there's jargon that we say as well as investors that as founders you're like, that doesn't make any sense. I don't know what that means. And we will try and answer it.

48:19 Maxine Minter: That was pure gibberish.

48:20 Cheryl Mack: That was pure gibberish. That was 100% incomprehensible gibberish.

48:24 Maxine Minter: And as investors, I think we could do a better job of giving founders a break when they don't answer perfectly because we just spoke gibberish. 100%.

48:34 Cheryl Mack: So for any of the investors listening on this call, hopefully this is useful for you as a reminder to please explain what you mean, especially for folks that it's their first time raising, first time operating startup. And for founders on this call, hopefully this clarified a few of the ridiculous gibberish we sometimes throw at you.

48:52 Maxine Minter: And hopefully it was at least quite a bit entertaining.

48:56 Cheryl Mack: Hopefully it made you laugh.