VC Jargons 101: What Investors Really Mean When They Say “It’s Not a Fit"

0:00Cheryl Mack: 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? And then due diligence, we shorten that to do dilly and you're like dill pickles. No one calls it due dilly. Yes, I have seen that. People call it due dilly? Yes. What? Oh man, there's even a podcast called the due dilly podcast that helps financial advisors do due diligence on things. Oh God, give me strength. Okay. Three, two, one. Hey, I'm Cheryl. I'm Maxine. This is First Check, part of day one, the network dedicated to founders, operators, and investors. If you want to be a better early stage investor, this is the show for you.

0:44Cheryl Mack: So TLDR, if you don't want to suck at investing, listen up.

0:53Cheryl Mack: Okay. So this is welcome to First Check's 101 episodes. This episode is 101 with a little bit of a twist where we're going to 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.

1:20Maxine Minter: 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 have felt like intense pressure to be funny so prepare for terrible jokes and a lot of cringe folks okay we're going to do this in three parts so we're going to focus on translating VC speak for founders and probably some angels out there as well we're going to do it in three 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.

1:57Maxine Minter: 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, Carol, you want to kick us off? Let's get interpreting. You're listening to a DayOne.fm show.

2:15Cheryl Mack: Hey, Maxine, did you know First Check is proudly sponsored by Deal, the global HR platform behind the expansion of companies like Revolut and Shopify? Oh, yeah. Or there's also 11 labs. They quadrupled their workforce in 54 countries, so everyone can build their global team with deal.

2:36Cheryl Mack: If you're a founder or operator trying to scale, here's the reality. Australian hiring is getting harder, salaries are at record highs, and the talent you need is increasingly out of reach. The best operators are quietly building offshore teams of engineers, marketers, accountants, and analysts at a fraction of the cost.

2:52Maxine Minter: Pear Tree does it differently. They headhunt highly skilled talent from the Philippines and South Africa with full transparency on where every dollar goes. So your team is paid fairly and they are fully focused on your business.

3:04Cheryl Mack: As a day one listener, you'll receive a free team audit to identify where offshore talent could move the needle in your business.

3:10Maxine Minter: Plus 20 % off on your first hire. You can learn more at dayone.fm slash pear tree. That's dayone.fm slash p-e-a-r-t-r-e-e.

3:24Cheryl Mack: look i'll be honest i am 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 tell me you've said yeah yeah yes yes like

3:36Maxine Minter: hundreds of times it happens all the time yeah it's not a good fit for us you're not a good fit for us the company's not a good fit for us fit fit but like how useless of a statement is that for a founder. 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 like an important part of the filter. So what that actually means, let me translate. What it actually means is one of a range of things. Most likely it means that you, the company that you are building, isn't a thesis fit for the fund that you are talking to.

4:16Maxine Minter: 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 like particularly scientific. And so lots of companies just are not, in both of the comments, fit for those funds. Then there is the version that is, the company is 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 a precede investor or to Cheryl, but actually you are talking to someone who is way later down.

4:51Maxine Minter: So you start 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. But 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're not a fit for us.

5:09Cheryl Mack: Which is really like, we don't like you.

5:12Maxine Minter: I mean, in some circumstances, yes. It's also, you know, we don't think that you're a fit for the company. We don't think that you are, you know, compelling in that category. And that's tough feedback to deliver. So what I've noticed is BC is just like, bucket it all together. Sorry, like it's not a fit. And they don't have to distinguish it between the human and the company. But so it can mean anything in there. If you're feeling brave, your confidence is feeling particularly robust in that moment, I recommend you ask them like, oh, great. What isn't a fit? Yeah. Is it the stage of our company, the industry you're in or me personally?

5:49Maxine Minter: And if it's me personally, can you please explain that? Because that can be really helpful feedback.

5:54Cheryl Mack: in what world would you answer that honestly though like if a founder asked me like if it's me personally please explain why you don't like me personally in no world am i replying to that

6:07Maxine Minter: 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 no but like

6:16Cheryl Mack: 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. Your other example was like, I don't think that like you are like the, what was the other example you had? Compelling, right? Like, yeah. 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. So all of those are still,

6:45Maxine Minter: you're not, you're not good. I would answer that question. If you asked me that question, I would and the reason I would do that is because one of the first VCs I ever pitched for Bear Shake 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're the kind of operator that's going to build an interesting company. Wow. Harsh. And I was like, oof. Okay. Like, let's have that conversation. Why? And he was like, well, like lawyers don't generally build great companies, blah, blah, blah.

7:29Maxine Minter: And he explained it all to me and it was really helpful to understand his biases, right? Also, to help me understand like where I needed to be slightly different in the way that I can tell that story or like highlight different profiles of all the things that I had done. I didn't have my best evening ever after that. You went on and like cried yourself to sleep. 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.

8:07Cheryl Mack: 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 fun literally the whole sentence every single word you've just said is ambitious yeah exactly so like adding a few sentences 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 want to 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.

9:01Cheryl Mack: That's way more helpful. What about the like, you're too early for us?

9:06Maxine Minter: Oh, there's 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

9:14Cheryl Mack: 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 have one chance to make an impression and uh and if it's a 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 the 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 want to say that like 90 of the time it's actually just another word way of saying no uh we don't we don't believe in what you're building but like there's that like five to 10 % of the chance that they actually mean you're too early.

10:08Maxine Minter: Yeah. And 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 look at the companies they're invested in, they're investing in series A and you're giving them like pre-idea, a few dollars of revenue, like they're just not going to be able to make that investment. But I think it really muddies the water. Yeah, well, what are all those VCs that go, it's never too early to come talk to us, and then they're...

10:38Maxine Minter: Right, right. Except for right now. Then they're like, except for right now when you're too early to up. Yeah. Yeah. We told you this would be a lot of bagging on VCs on this episode. Yeah. Also, I mean, increasingly, for folks like us, you're too late for us. True. So both in both directions, right? I say that. 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.

11:18Maxine Minter: 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?

11:25Cheryl Mack: I think that I actually think that one's obvious it's like no I invest early stage if you've got two million rep in ARR already like I'm I'm over here for the huge risk like you do risk that too much for me to get a good return so no right I think that but that that

11:43Maxine Minter: is the not obvious point right because if you're especially in the Australian ecosystem right if you're 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 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 And essentially what that means is they are assuming that your valuation is too high or it means that they have a particular thesis about a stage of risk, i.e.

12:29Maxine Minter: 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, etc. I find the time you find a great customer with a great go to market and you're ready to scale, I am dumb money on your cap table. I'm just hanging out there, hanging onto your coat tails 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 it's already too far along for us, it's like a product market 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.

13:03Cheryl Mack: Yeah, 100%. I mean, I think that was pretty obvious, but it helps when you explain it like that.

13:09Maxine Minter: okay so when you're in those fundraising conversations right what does it mean let's have one more meeting oh i don't know that one i mean if you've already had one or two meetings with them and they ask you for another meeting and then another one i think that would

13:27Cheryl Mack: go either way like okay how would you interpret it i mean the optimist in me would be like you know they want to spend more time 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 now 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 just deprioritize that and i'm not here for

14:04Maxine Minter: 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

14:20Cheryl Mack: ghost 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 right like i just didn't get to a yes or a no and because i can't get to yeah which is effectively a no sure but in my mind so just

14:41Maxine Minter: send that i don't have time i'm sorry i'm a constructive no but i don't want to say the word

14:49Cheryl Mack: 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 four weeks and I still haven't gotten to a yes or no which they've hopefully just assumed as a no but it's I mean I just think it is so valuable just to close the loop even if you're

15:07Maxine Minter: like hey by the way I'm passing and they're like yeah man I didn't want you on my cat table anyway like why are you saying I pass on you um 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 one more meeting next meeting what does it mean right probably after two or three unless it's you're in like deep diligence with the fund then it probably means i'm on the fence right i want the optionality to invest

15:39Cheryl Mack: if i can get to a yes but i'm on the fence 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? Right. 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. Let's have, oh, let's, oh, you're coming back to, okay. Let's have one more meeting. Who you got?

16:07Maxine Minter: Right. Exactly. So they're keeping close. They're like wanting to keep touch points 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. like we're 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 that you get to a yes or a no right either because i find those let's have one more meeting is like just 5 ,000 cuts yeah the founders like if you're maintaining 15 angels in your funnel or like 15 funds in your funnel and they're all like next meeting next meeting next meeting that gets a lot that's just a big all waste of your time

17:03Cheryl Mack: that's a lot yeah 100 % what about all the ones that are like you know where we're discussing it internally or, you know, we'll circle back after we do more diligence or we're just having some more discussions or like, we're going to do this at the next IEC meeting. There's a ton of that out there, right? A ton.

17:22Maxine Minter: 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 working with a VC who's investing out of a small fund or a single decision maker dynamic, it's 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.

18:01Maxine Minter: You have to convince the first investor that you speak to.

18:05Cheryl Mack: Multiple stakeholders.

18:05Maxine Minter: 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 the 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 seven partnership fund or seven partner partner fund. And they say, I need to talk to my people.

18:41Maxine Minter: That's what they mean.

18:42Cheryl Mack: That's probably legit.

18:43Maxine Minter: They are literally talking to their people.

18:45Cheryl Mack: At the same time, though, we've all seen those deals that the VC turns around in three days. So I think we can, like, also say that, like, if they're delaying things, it probably just means that you're not a priority. priority and at that stage it's like well you know you know discount that and say okay cool we're not a priority for this fund um or figure out how to make yourself a priority which is

19:10Maxine Minter: often harder harder to do 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 etc and so you had people stepping into market being like we're in market for seven days like you gotta sign on the government wire immediately kind of thing. That is no longer the case. 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.

19:49Maxine Minter: 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 the company. So if you say, I will give you seven 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 two three weeks to do their proper diligence and kind of get to that ekki-esque 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 like June 30th in the ramp up to end of financial year yeah like

20:45Cheryl Mack: savage time what is that though like can we just back 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 right also who you are in a lot of

21:06Maxine Minter: circumstances investors will pass because they just don't have the capacity of diligence you were like i'm necessarily creating a competitive dynamic for yourself that doesn't need to exist. 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 fix other companies and I've got companies doing transactions and you know, it's just, it's, it's not pretty inside of VCs between June 1 and June 30.

21:40it really is that or in the u.s between kind of november 1 and thanksgiving when whatever date

21:50Maxine Minter: that falls on or the end of year like just don't try try and close your transactions in those period of time it just is an unnecessary compression on everyone yeah anyway that's for us that wasn't for you

22:13Cheryl Mack: we get it global hiring and payroll can be a headache right maxine oh yeah companies like shopify revolute and 11 labs already scale internationally with deal there's also air wallets the leading ai finance platform and they manage and pay over 1185 employees across 16 countries build your global team with deal you can visit deal.com slash day one and start expanding your business today.

22:41Maxine Minter: So what about this whole idea of conviction, right? This is actually a jargon word that we use a lot in BC.

22:49Cheryl Mack: Yeah, we've just invented this word and it actually, 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. Right. In any other scenario, we would be the assholes.

23:07Maxine Minter: 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?

23:29Cheryl Mack: That we like to use jargon and confuse you. just kidding uh no i think we like like this gibberish word because it because it's more abstract and it allows us to like assign us assign its own meeting but generally we mean that like we we're not there yet we're we're not convinced that you're the thing that we want to invest in yet we're not convinced that i 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.

24:09Cheryl Mack: It's these three things. And so I need to go deep on these three things. Um, 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? Yeah.

24:20Maxine Minter: 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, the 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 switch over. 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 a maybe core assumption that's behind your business right 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 it sometimes can mean I'm not investing because I'm essentially

25:31Cheryl Mack: telling you I don't believe yeah when you're using it in that sentence you're like no I didn't I get to conviction sure yeah but if you're still if you're before the no and using it and hearing it

25:42Maxine Minter: then it could be a good sign if there's no negative term in the sentence yeah you're it's good yeah

25:48Cheryl Mack: you're like working towards conviction yeah exactly oh man what about all the things that vcs say that are like we we want to keep optionality here it's like uh you know we're keep us in the loop or we love what you're doing yeah i mean as we are running through these my

26:07Maxine Minter: My overall takeaway is investors are just like trying to wait, but it just maximizing for the money value of time. Right. They're like waiting and waiting and waiting until they absolutely have to make a jump. Make a decision. Yeah. Or like, let us know when you have a lead. 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. We love what you're doing, et cetera. we'd love to we'd love to support in non-capital ways yeah that's just a no that's that's a we 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 want to stay in touch sometimes it genuinely that's what it means it's a reference to the top of like Like, you know, it's not the right fit for us yet.

27:05Maxine Minter: You're too early, right? They want to stay in touch because there are some investments that are, they are 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 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 want to stay close. I want to build more information to get me to a yes.

27:31Cheryl Mack: Connection.

27:31Maxine Minter: Build me into conviction. But probably not this round. 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. I might.

27:55Cheryl Mack: If someone else that we trust is in, then we might FOMO in at the last minute is really what they mean.

28:01Maxine Minter: Yeah, that's essentially like, please go and create FOMO for me and then I may invest. Yeah.

28:09Cheryl Mack: And possibly be mad that there's not enough allocation for me when I decide at the very last minute, three minutes before your deadline and your round is 95 % full.

28:20Maxine Minter: Right, right. That's the moment that I really want to invest, when it is least convenient. And I want you to make more room in the round so I can fit my full check size in. Yeah, yeah. Yeah, it's a while ago for me. So, yeah, sometimes that is what it means. But if they're saying like, we'd love to support in non-capital ways, it either means they have no capital to invest.

28:41Cheryl Mack: Yeah, it could mean like we don't have any dry powder right now.

28:46Maxine Minter: Yeah, but they're not going to say that. It would be easy fun to say that. They're not going to say that, but 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 on a webinar recently with a Pitchcock team, and according to their data, only one fund was closed in 2024. No, 2025 so far in Australia. One. Not good. Damn. Damn. As in one new fund? Or? Like new fund, but not new brand. Right. I suspect that is maybe Airtree. Well, actually, and maybe Airtree is not closed yet. But anyway, I think it's very possible that what they're saying is we don't have any dry powder, like we've got nothing to invest.

29:32Maxine Minter: Or they're saying that they're not going to invest because you're not a fit. They're not convicted. We need to just pull in all the jargon words. We're trying to... All the jargon. Yeah. Referring to use less jargon. List of jargon. Okay. So that's the fundraising process. Negotiating. You have a term sheet. You're in negotiations. what are some stuff you're going to hear from investors that makes absolutely no sense

29:57Cheryl Mack: oh man just i think all the terms right like the terms would come up with you're like i basically need a thesaurus for this totally yeah i think we've actually done quite a few episodes

30:09Maxine Minter: on like ground 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 for it. SACE. Keep going. Convertible notes, cap tables, liquidation preferences, anti-dilution, pro rata, ratchets, most favoured 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.

30:56Cheryl Mack: And then to make things more complicated, we then go and like create silly versions of those words where we just like shorten it or completely make up a new word to represent that. So like valuation, we go like Val and you're like, who the fuck is Val? right and then due diligence we started not to do dilly and you're like dill pickles not no one calls it due dilly i have uh yes people call it yes what astralia you've gone too far it's too far

31:30Maxine Minter: no no i'm pretty sure that's in the u.s i've heard 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 saying the words do dilly not ironically i can't yes those two things are like not hungrious in my mind oh man there's even a podcast called the do dilly podcast

32:01Cheryl Mack: that helps financial advisors do due diligence on things oh god give me strength And then there's another one for like dilution that I can't remember at the moment.

32:14Maxine Minter: 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. I mean we use vowel. True we do use vowel. Jude Dilly is the only thing that I'm taking you to do 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.

32:51Maxine Minter: 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. So most people, if you're investing in a company, and we talk about this a lot on this podcast, and they're 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.

33:36Maxine Minter: In fact, I don't think I've ever seen it contractually agreed to in a safe one in Guildox.

33:40Cheryl Mack: I would almost want to put in the investor updates. I would like that to be contractually obligated.

33:47Maxine Minter: 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.

34:20Maxine Minter: 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.

34:29Cheryl Mack: All right. I got some more for you, Maxine. I asked the chatty. Some others. Chat GTP? Yeah. So some others apparently were calling them foundies, baby talk for founders. What?

34:46Maxine Minter: uh cindy which is syndicate bridgie for bridge round this is only in australia right where we

34:54Cheryl Mack: put ie at the end of every single sentence like that's a thing that we do but every word but this i didn't i didn't filter for australia i just said what are some weird silly bc jargon

35:07Maxine Minter: that we tend to use i think what you're looking at is one giant hallucination and no one in their right mind. Whoever used any of these terms. I guarantee if I search on Twitter I would find this. 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 round negotiations. Is there anything we haven't covered in round negotiation other than fairly complex legal terms? Oh, So ESIC, ESVCLP are both terms that can come up in round negotiation. What it means is on the fund side, ESVCLP is a structure that funds use and they have a tax implication.

35:53Maxine Minter: 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 and 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

36:10Cheryl Mack: which is and then just skip to the bit on ESBCLP yeah read that one we also cover a lot of these deal terms and fund structures in the angel academy course that we run uh 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'd encourage you to check out uh venture.academy uh one other thing we forgot to mention is i we do see this with uh 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 uh we think we have better lawyers than your lawyers yeah we want

36:53Maxine Minter: to fight about it but we don't want to fight with you about it so i'm going to delegate this fight to my lawyer i'm going to let them fight your lawyer and then you're going to pay for it that's what that means yeah 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 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 them rule so that we don't damage

37:34Cheryl Mack: our relationship for you to try and line that up yeah and it's usually not a good idea to let the lawyers fight it out because that just racks up fees right true well i don't know i think there

37:45Maxine Minter: are some that it's valuable to let the lawyers have that fight because they can kind of do out 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 is going to be you and the investor on the same side of the table, right? Pushing, trying to grow this company. And for this one like two week period, you're not on the same side. No, you're on either side.

38:23Maxine Minter: When they just said yes to you too, 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're fully educated you feel like you have the information you need to make those calls but also remembering the grand scheme of 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 map to try and like negotiate this stuff out and in those circumstances great if your lawyer wants to go to the map if they really want to and they want to do it with the lawyer but not

39:01Cheryl Mack: with the other side's lawyer but not necessarily you okay you have now closed your round you've negotiated terms you're both somewhat happy with them micro happy with them and now you're working

39:14Maxine Minter: with investors what are some of the terminology that comes up or the jargon oh i mean like i think

39:19Cheryl Mack: a lot of it is like investors want to 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, BCs 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 is not doing well. We just made an investment.

39:54Maxine Minter: Right. Yeah. Yeah. Or you haven't talked to me for six 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 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 then there's the other ones

40:25Cheryl Mack: 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 can we get an update like what's your runway burn numbers right i think that's an

40:44Maxine Minter: important one right so investors are probably going to ask you along the journey or you're going to 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. Yeah. 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 is really buggerful.

41:20Maxine Minter: 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 like 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. Be another vote for regular updates. Yes, it is. I mean, I would actually, I was 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.

41:53Maxine Minter: So they don't want to write updates where what they're telling investors 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-C to C. on average is about 50%. So that means in that first two years, 50 % of those companies are going to go to zero or thereabouts, right?

42:32Maxine Minter: It was also a graduation rate.

42:33Cheryl Mack: And we're expecting that. Right, we're expecting that. But we're also expecting to like be kept in the loop along the way. Like, 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, 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. 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.

43:09Cheryl Mack: If there's anybody left, send it back. If not, wrap it up, go find something else. Like pay me when you're on the next one.

43:16Maxine Minter: 100%, yeah. And I think that this is a misconception that I hear. I'm 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 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 show a new light on your business.

43:50Maxine Minter: 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 smosh you. They can accelerate you.

43:59Cheryl Mack: What do they say when they don't want to lead your next round? Boof. Or follow on?

44:06Maxine Minter: Well, ideally, they just tell you we're not going to be investing. But they don't. But often they don't. Come on. That would be silly, Maxine, if we just said what was true. 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 touch points with them, is it will be a more kind of performative pitch process ahead of a more formal raise.

44:41Maxine Minter: Ideally you're stepping into market with a term share with your existing investor, but if that doesn't happen then you know you're running your process regardless um but often they will say to you you know 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 on this journey for me and so i need to go through that process regardless of whether i'm really excited about this.

45:13Cheryl Mack: They'll also sometimes say things like, oh, you know, 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 three months later now. So the revenue needs to be here now.

45:28Maxine Minter: I really hope that this isn't happening as much as it was in the Zerp 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 me is free because it was, it's unlimited because it kind of was. Yeah. Why are you growing? Grow faster. Grow faster, grow faster. Spend more money. 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.

46:05Cheryl Mack: You wanted me to grow, right? They're like, what? No, now you need to get profitable like yesterday. Right.

46:11Maxine Minter: 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 metric should be Y.

46:19Cheryl Mack: You should be close. You should be six to 12 months out from profitability.

46:22Maxine Minter: Yeah. You should be stepping into market with 12 months at Brunaway. 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, the distribution of growth metrics per round, the distribution of kind of LLIs signed by round, feature completeness by round, like it is extremely wide. And so for every rule of thumb. Very opaque. 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

47:25Cheryl Mack: them really exciting and then benchmark to that instead benchmark to that that makes sense but as VCs where 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. Here's the line for now.

47:38Maxine Minter: This afternoon at 3.01 PM, this is the line. Yeah. If you want to raise at 3.02 PM, it's moved. It's moved. It's all the way. Oh, it moved again. 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're seeing across the team that is a red herring i don't understand the question oh okay so jarvin i hear from some investors or questions i hear from some investors how's it going with x what does that

48:13Cheryl Mack: mean x being like a person team member a team member yeah oh that probably means that like i heard through the grapevine that X may not be happy or that another company might be trying to poach X.

48:27Maxine Minter: 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 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 KG you want to be about the information. I would encourage you to answer truthfully, but recognize that doesn't always operate or doesn't align to the way that people approach this.

49:08Maxine Minter: So yeah, it can be worthwhile to collect more information.

49:10Cheryl Mack: 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 going to tell you why I'm asking anyway so you're going to find out

49:23Maxine Minter: immediately what I meant 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 what else 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. That was pure gibberish. That was pure gibberish. That

49:53Cheryl Mack: was 100 % incomprehensible gibberish. 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%.

50:06Maxine Minter: 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 who it's their first time raising, first time operating a startup. And for founders on this call, hopefully this clarified a few of the ridiculous, super-ish we sometimes throw at you. And hopefully it was at least quite a bit entertaining.

50:27Cheryl Mack: Hopefully it made you laugh.

50:40you