Initial feedback given to startups by VCs is “likely to be bollocks”, according to the managing director of Manchester-based venture capital firm Praetura Ventures.
Some startup founders see feedback as a valuable part of the pitching process, but David Foreman believes that some are “overestimating” its importance.
“The entire world seems to have gone mad on getting feedback,” said Foreman, speaking at the inaugural Manchester Tech Festival. Foreman gave the example of hundreds of job applicants to a Praetura role requesting feedback, but said when it comes to starups they may be overstating its importance.
“Equally the feedback we give after one meeting or reading the deck is likely to be bollocks because we don’t know enough,” he said.
“When founders get feedback from VCs, they massively overestimate the importance of it because it is just one person’s opinion based on fuck all knowledge, it’s just irrelevant.”
In another comment that on the surface seems contradictory for a VC, Foreman said that not all startups should be seeking venture capital.
“You do not need venture capital to grow your business… there are plenty of options for raising money,” Foreman said.
“When you go down this route, make sure you really want to go down this route, and that the VC capital is actually going to help you achieve your dreams.”
Foreman gave the example of the email marketing software Mailchimp, which never raised any outside funds and went on to be acquired by Intuit for $12bn (£10.7bn) last year. In this case, the proceeds from the sale went to founders, shareholders and the team, with none of it going to “any of the nasty VCs”.
On the opposite side of the scale, Foreman pointed to founders of companies that sell for millions or even billions but receive little payout due to diluted equity given away to VCs in exchange for capital.
Chance of funding is ‘just fucking maths’
Praetura Ventures is a venture capital firm based in Manchester with a focus on tech startups located in the North of England. It has invested in early-stage tech firms such as Bankifi, Culture Shift, Orka Technology, PEAK and Dr Fertility.
After whittling down approximately 200 opportunities that come to Praetura each month seeking funding, it will only end up making investments in about one company per month, or 0.5% of pitches, Foreman explained.
“That sounds really really slim but when you consider most businesses will go and speak to 20 VCs, it’s actually not half a per cent, it’s actually 10% because that’s just fucking maths,” he said.
“So when people talk about how slim the chance of raising capital is, it’s not quite as bad as you think.”
Foreman advised startups looking for funding to find VCs that are looking to invest in their business area or will invest the specific amount that they want to raise. For example, startups shouldn’t go to Praetura if they are seeking £20m in one go as it typically invests smaller amounts.
“We are looking for people, every VC is looking for people to invest in,” added Foreman. “There is no point in a VC having a massive fund and investing in no one.”