This article is a departure from our usual programming and insights. We’re fortunate enough to have a number of brilliant and generous leaders sharing their (uncensored) thoughts and experiences of working in eCommerce and digital. We call them ‘The Stigs’. 

‍

They’re honest, genuine, and hungry to share the truth. They do not hold back. Ignore them at your peril!

‍

What VCs say...and what they actually mean

We’re very lucky that we managed to grow without ever taking VC money. But that doesn’t mean we don’t have some that hang about offering their golden advice and wisdom. Recently, I had a face-off where someone very sincerely told me I should step down for a ‘real’ CEO because a woman with children should be at home. Despite the fact he had been parachuted into a business his fund invested in as a professional CEO. 

‍

He also said my business wouldn’t survive for five years without VC investment. Despite having an 18% EBITDA margin. All the wining and dining was done; that was his real view, and what he was really saying was,  “How much of a discount can I get on your business by scaring you?” 

‍

So, let’s play what they say versus what they mean! 

‍

“We back founders!” 

‍

“We back people and their ideas,” they say. “We invest only when we believe deeply in your strategy and will respect your timelines and nurture the culture you have created!” Psyche. In reality, we’ll love bomb you to try and get you to sign on the best possible terms. As soon as you’ve signed, we’ll start suggesting you’re “overworked” and maybe you should “step back from the day-to-day hassle” by bringing in a “professional CEO”, allowing you to focus on “the brand.”

‍

“We’re patient capital!”

‍

But our investors aren’t. This fund closed two years ago, and we still haven’t returned a penny to our LPs. So, if you haven’t produced a return in three years don’t be surprised if we sell the business out from under you.

‍

“We don’t just put money in, we provide added value / We bring more than capital to the table.”

‍

Ideally, we won’t even put capital in; we’ll just load your business up with debt. But if we do put our own money in, expect us to micromanage every decision you make

‍

“Don’t worry about the control measures in the term sheet. That’s just boilerplate.” 

‍

But there’s no way in hell we’ll take them out because that’s what we’ll use to force you to accept a deal you don’t want in three years' time because we need to show a return for our LPs.

‍

“We work together to build sustainable growth, not just growth at all costs.” 

‍

Loading your business to the eyeballs with debt, selling off any assets you have so you can lease them back (ideally from us), and burning your customer relationships by jacking up prices while cutting quality is sustainable. For us – because we’ve done it at every business we’ve ever invested in.

‍

“We’ve got a track record of success*.”

‍

*Of making buckets of cash for our LPs. Just don’t ask us what happened to any of the previous businesses we invested in.

‍

“This is the only way your business will succeed.” 

‍

It’s the only way our business will succeed because we don’t create anything. You have a business that provides real value to customers and makes a difference to their lives. Our business model was once described as being like a Vampire Squid, and it’s only funny because it’s true.

‍

“We only take minority stakes.” 

‍

If we took a majority stake, you’d expect us to actually do the work. By taking a minority stake, we make you do all the actual work. But with the control provisions in the term sheet, we still get to overrule your decisions anytime we feel like it.

‍

“We think an Omnichannel strategy would be PERFECT for you.” 

‍

Frankly, we don’t care if it’s good for your business long term; getting you into retail is the quickest way to juice the sales number and allow us to flip the business quickly before anyone realises the sugar rush can’t last.

‍

“Here’s an expert we’ve independently vetted / We know this agency that’s delivered amazing results for other companies in our portfolio.”

‍

Anyone we recommend to you will give us a minimum of 10% kickback on anything you pay them, year in and year out.

‍

So, the takeaway! VCs don’t know anything about running an actual business. Anything you tell them, even off the record, will be used against you in the final moments of battle. So make sure you take recommendations from actual independents and only take their money if you really really need it. Running a business without investment is a real, legitimate thing.

‍