VC Cliche of the Week

I was talking yesterday to a couple friends about how you can tell if a VC will do the things they say they’ll do when trying to get into a deal.

One of my friends said, "watch what they do, not what they say they’ll do".

And it reminded me of Bliss, one of partners at Euclid where I first learned the VC business, who would always say about entrepreneurs, "watch what they do, not what they say".

It’s good advice for everyone involved in the VC equation.  People say lots of things and many of them turn out to be untrue.  Not necessarily because they are lying, although there are certainly plenty of liars in the startup world on both sides of the table. 

But more often its just human nature.  People believe they are doing one thing when in fact they are doing something completely different and they don’t realize it.

A VC might say, "we are really active investors, we’ll fly anywhere at any time to help our companies".  They’ve said this so many times, to their investors (LPs), to their partners, and to their portfolio companies, that they believe its true.  And in some cases it is.  But in many cases, it isn’t true.

How do you find out?  Ask around.  See what they actually do, not what they say they do.

An entrepreneur might say, "I only hire people who can replace me within a couple years".  They want to believe its true.  They’ve said it so many times; to the people they recruit, to their board, to potential investors.  But in fact, the entrepreneur only hires order takers who will do what they are told and who do not threaten the entrepreneur. 

If you have the opportunity to watch someone in action, to observe their behavior, you will find the truth every time.  The longer you can observe someone, the better.  Sometimes patterns of behavior develop over longer periods of time.

And that’s a problem because many times you need to make a decision about someone, whether or not to take their money, whether or not to invest in their company, whether or not to hire them, and you have only a month or two to make that decision.

So I have two suggestions:

First – Create as many situations in the short period as you can where you can observe how the person behaves in revealing ways. Spend as much time with the person as you can.

Second – Ask around.  This is harder because nobody likes to give a bad reference.  So you have to listen to what the people don’t say as much as what they do say.  You also have to find people (possibly via LinkedIn or some other network) that you know well who also knows the person well.

It’s critical to find out what people actually do.  Because talk is cheap and you can’t rely on what people say.  When it comes to people, watch what they do, not what they say.