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On Fundraising: How to Deal with Bad Actors
Ignore Ghosts, Laugh at Clowns, and Ban Players
Arkady Kulik & Tom White
April 22, 2024
🦄 Unicorner Special Edition
✍️ Notes from the Editors
Today’s special edition is brought to you by Mercury. Your startup deserves a quality network. Join Mercury Raise.
We interrupt your scheduled programming for a special edition of Unicorner.
If you’ve been with us for a minute, you might remember Tom White and his previous special edition on the deep tech VC rpv.
Tom is back this week, but as a guest editor—and we’re excited to welcome Arkady Kulik, founder and managing partner at rpv, as our guest contributor.
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On Fundraising: How to Deal with Bad Actors
Ignore Ghosts, Laugh at Clowns, and Ban Players
Written by Arkady Kulik, Edited by Tom White
When someone shows you who they are, believe them the first time.
Happy fundraises are short and sweet; unhappy ones are interminable, frustrating, and full of wailing and gnashing of teeth. In the nineteen years of my entrepreneurial journey, I bootstrapped my first company to multimillion success and later raised over $30m as both a founder and a VC.
The internet is awash with advice — some good, most bad, a small bit downright ugly — on navigating the fundraising process. Strategies and opinions on cold outreach, storytelling, et cetera, abound. Such resources suggest a world where you have unlimited time and energy to pursue these activities. Yet, the reality is starkly different: our resources are finite.
My goal with this paper is to protect your most valuable resource: your time.
To do it, you need to know how to identify:
Ghosts who never respond
Clowns who fail to walk their talk
Players who have a hidden agenda
The patterns described below are general behaviors exhibited in the specific context of the specific fundraises. Do not take them as a holistic description of any individual. Always assume good intent. People are rarely malicious; the reality is they are simply lazy, disorganized, or don’t care. While some are indeed unreliable all the time, others are only unreliable in certain ways or contexts.
Ignore Ghosts
Ghosts are people who abruptly stop communicating with you after initial conversations or email exchanges.
Disclaimer: not answering to a cold outreach does not make one a ghost.
Ghosts are easy to recognize: you had a conversation or an email exchange and they disappear, ignoring each and every one of your follow ups.
Productive engagement is a sign of respect. If someone respects you and sees the value in what you are building, they will find a minute to tell you what they decided. If they don’t send you a “we’ve decided to pass” message and ghost you, they are not worth your time.
How to deal with ghosts: Don’t be afraid to follow up! People are busy and follow-ups are expected. However, if someone is ghosting you after three follow ups — stop following up and start ignoring them. Even if they later show up in the same fundraise — pay them no attention as they are not serious.
Professional investors will always find the time to send you a pass note.
Top-tier investors will specifically explain why they have passed.
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Laugh at Clowns
People who don’t walk their talk are clowns. Their words are worthless; they simply tell you what you want to hear just to keep you engaged.
Clowns are easy to recognize: they often volunteer to do something for you or even immediately commit on the very first call. Though overly enthusiastic, they somehow never follow through. As you are following up, they come up with excuses and speak more empty promises.
True story: I once had a prospective LP who swore on his mother’s grave that he would sign by a certain date. He never did.
Folks who don’t do what they have promised will be like that with everything: signing paperwork, wiring funds, etc. They are either too busy, too disorganized, or simply don’t care about you. Interactions with them will always end up in broken hopes.
How to deal with clowns: disengage and cut off the conversation/connection if someone is not walking their talk. On top of saving time and energy, you are saving yourself from lasting disappointment.
Professional investors will do what they’ve promised.
Top-tier investors will do what they’ve promised very quickly.
Ban Players
People who pretend to be investors are players. Perhaps they enjoy the status of the title or the inherent power dynamic. Maybe they’re simply bored or lonely. The point is – they're looking for a feeling, not an investment. Making money is not their goal, playing a game is.
Of all bad actors, these are the worst. They will waste all of the time you are willing to give them and never wire money (even after they have signed the paperwork).
Don’t feed their egos.
Players are the most difficult to recognize. They are largely good at deception. For some, deception IS the very game they play – they enjoy lying or withholding information in order to feel superior to you. Understanding a player’s background and true motivation is the key to recognizing them in the wild.
Player archetypes include (again, all names are fictional):
#1: Lupus
Lupus feels and acts like a king of the world. He made some cash as a corporate and now seeks a raw feeling of power that he expects from the inherent power dynamic between founders and investors. As a sadist, he enjoys torturing you.
Tell-tale signs are:
👉 He behaves like an expert in areas he doesn’t understand.
👉 When he asks questions, he is not looking for answers, he is looking to make you squirm. The more frustrated you are, the happier he is.
👉 His questions are endless and he is never satisfied. Often he will rephrase the same questions and reask them.
How to deal with Lupus: test how receptive they are to power dynamic plays. For example, start doubting their capability to invest or even ask the right questions. If it angers them, you found your Lupus. Stop the relationship.
#2: Octavius
Octavius just knows that he is the smartest guy in the room. If someone dares to point out that it’s not true, he explodes. He seeks superiority and will lie and cheat his way for this fleeting sensation.
Tell-tale signs are:
👉 He tells you what you want to hear and sometimes even does what he has promised. He is 80% clown, but every time you feel like cutting the link, he comes through and you decide to give him another chance.
👉 He meets hiccups on every step of the process and offers ridiculous excuses: never received an email, had to urgently travel somewhere, etc.
How to deal with Octavius: give them strict deadlines and do not tolerate a single slip up. Stop engaging until they complete everything they promised. Be ready to never see these promises realized.
#3: Severina
Severina heard that being a VC is cool, so she decided to launch a fund for the sake of social status. Whether she has a fund or not, she runs around promising investments to everyone and basks in unearned gratitude. She desperately wants to be cool.
Tell-tale signs are:
👉 She commits very quickly and is always very optimistic.
👉 Her due diligence was superficial if it was conducted at all.
👉 You’ve heard from others that she has committed, but doesn’t sign or wire.
👉 You’ve heard that she might not even have a fund yet.
👉 She might sneak a finder’s fee in her paperwork and promise to take care of your whole round for you. Real investors do not like finder’s fees and having them in the mix might destroy your chances with a legit investor.
How to deal with Severina: Begin by asking how many investments they have made in the past 3-6 months. Then ask for a couple of references from current investments. If possible, conduct your own background check. Once your suspicions are confirmed, disregard anything Severina has to say and don’t be surprised if her verbal commitment never turns into a check.
Side note – never sign any side letters with the finder's fee language; that contract might force you to pay these fees even if you raise money without their help.
#4: Edwina
Edwina is looking for a source of income and pretends to be an investor to boost her value. She is fishing around to become an advisor, mentor, consultant or something of that nature. She will never invest because she simply doesn’t have the money.
Tell-tale signs are:
👉 She LOVES your company and is very vocal about it with you.
👉 She is happy to immediately join you, no matter the capacity.
👉 Her promises about investment timelines are vague. She is “waiting for a liquidity event” or “has to talk with her spouse” or some other reason to delay a decision.
👉 Once engaged as an advisor/mentor, she creates zero value, produces no introductions, and helps with nothing of consequence.
How to deal with Edwina: have a vesting period and a cliff period (at least three months) in all your advisory agreements. 90% of Edwinas would be scared off by that, the rest will show no value during the cliff period. Either way – you won’t lose anything. Better yet, avoid them entirely – their advice is rarely correct or helpful.
#5: Regulus
Regulus is bored. He has successfully sold a startup and doesn’t know what to do next. He thinks “Well, why not invest in startups?”
Tell-tale signs are:
👉 There is no investment process as investing is a leisure activity for Regulus.
👉 He is inconsistent in his communication. It happens in bursts.
👉 His conviction doesn’t have a trend: he can be very excited initially, completely discouraged the next day, ready to commit a couple of weeks later, and then disappear entirely once it’s time to sign.
How to deal with Regulus: ask them straightaway what their process is. If there is no clarity, drive the relationship yourself. Tell them what other investors tend to do at the current stage, proactively seek their questions, and push them to reach a decision.
How to deal with players in general: if someone is trying to play you – cut them loose as soon as you recognize that behavior. Don’t trust a word they say, don’t allow them to invest in your company and make sure that they are not a part of your life at all.
Life is too short to spend on people who want to harm you. The book Games People Play is a great way to delve more deeply into that topic.
Professional investors don’t play games. They clearly understand their personal motivation: some want to make money, others want to advance space exploration, others want to cure diseases. All of these investors are for real.
Top-tier investors make money and fulfill their life mission simultaneously.
Befriend Reliable Actors
Now that you know how to identify and deal with bad actors, it's time to learn how to identify professional investors. Focus your time and energy on them.
How to recognize professional investors:
They have a clear investment process and articulate it concisely. Ask them about it at the end of the first meeting and listen to how they talk about it.
They have a reasonable (even if broad) thesis and they have an idea (even if vague) on what they are looking for.
They respond to your follow ups. Build a follow up cadence (ideally, 3 to 5 touch points) and track to which follow up they have responded.
They are helping you before they have invested. It might be advice on deck composition, an intro to another investor, or anything else that creates value.
If they pass - they will write a note, even if it is formal and opaque. They will leave the door open for future opportunities.
How to recognize top-tier investors:
They drive the investment process. You don’t have to remind them or chase them, they are proactive in gathering the needed data. Nick Tawil excels at that.
They have a laser-sharp focus and can articulate in simple terms why it works for them right now. Adam Draper stands out for me.
They respond without follow ups. If you never had to initiate your follow up cadence, this is a sure sign. Ben Ehrlich has never made me chase him.
They help very fast. The best of investors will send you an introduction while you are still on the call. Special shout-out to Dave McClure.
If they pass, they will write a clear response with easy-to-understand reasons and might even give advice on how to improve your proposal. Evan Finkel does this with clarity and compassion.
How to build relationships with professional and top-tier investors:
Once you find professional investors – ask yourself if you like them as people.
Would you want to have a relationship with them if there was no business between you? Do you see them as guests in your house? Would you go on a vacation together?
Once you know they are the real deal, hold them close and treat them as friends.
Be helpful, open, empathetic and kind. Keep your eyes open for potential investment targets for them or just send them a video or meme their way every now and again. You might even find an LP for your investor, opportunities to be helpful are endless!
If you don’t genuinely like them as people, disengage. You will never have a trusting and genuine relationship with them. Remember, you are locked in with these people for the long run. The average VC fund lasts longer than the average marriage.
Afterword
Do not let bad actors get you down.
Their actions are a reflection of who they are, not who you are.
Recognize their motives and move on.
Focus your time and energy on reliable people who share your passion and values.
Don’t just wait for the future, build it.
P.S. We have covered just a subset of points here. I plan to update this guide periodically. If you’d like to contribute, contact me on LinkedIn or via email.
Thanks to Serguei Netessine, Paul Kewene-Hite, Dave McClure, Eric Jorgenson and David Zhou for reading. Special thank you to Tom White for his editing magic ✨
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