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A VC Just Cold-Called You; Now What?

Cold CallingOne of our founders called me.  “An analyst just called me.  He works for a VC fund tied to an investment bank.  He’s interested in our company and is keen to know more. How much information should I share? “

CEOs need to know what they’re getting into when they talk with VCs, particularly if those VCs work for entities which also house investment banks.  The founder wants to attract investors and promote the company.  At best, the CEO is courting a new investor, and at worst they’re wasting time and being pumped for competitive information. But which is it?

To start off, there are two things the founder can know for sure. First, a lot of what you say will permeate everywhere else within the firm that is calling (although the caller will assure you there are Chinese walls in place).   Investment banks’ Chinese walls are pocked with peepholes.  Second, the analyst is not a disinterested observer. His firm is  looking to make a play in the market and/or to map it out. You need to discern the nature of his interest before you tell him anything that he couldn’t find out with a quick Google search.

The analyst and his firm could be in many different states, which I’ve listed below from most to least favorable to you:

–        considering investing in you

–        writing a research report about the space that features you, which may or may not be published broadly…but will certainly be visible internally

–        has one of your competitors as a client (often not disclosed explicitly, for the not-illogical reason that professional services firms often keep client names confidential)

–        about to invest in a direct competitor (sometimes phrased as, “We’re analyzing this sector.”)

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–        already an investor in a competitor (which he would immediately disclose if he has any integrity at all; it’s rare for someone not to disclose this in the introductory few minutes)

The easiest way to find out the situation is to ask your interviewer directly.  “Are you an investor in any comparable companies, or in dialogue about investing with any comparable companies?  Are you writing anything for publication internally or externally?”

If the analyst has reached out to you, there is a specific reason. If his answer is vague or equivocal, there’s a reason for that too. If he’s not comfortable telling you specifically why he has reached out, then you shouldn’t be comfortable answering his questions. If he does give you a specific reason, verify it. Ask what investments or clients his firm has in this space, how he got your name, and what he will do with your data.

Following this process will reduce your risk that nonpublic information ends up in the wrong hands.

Previously published in Forbes.

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