Why Are VCs Biased Against Me?

In my 20-year career as a CEO, I have had more than 100 venture capital meetings but have only been successful raising money once.

I started my first business in 1990, before venture capital was a common way to fund new companies. For the next ten years, I ran businesses that I funded out of my own back pocket. Since the money was my own, every loss was personal. Nothing teaches you the hard knocks of business quite like finding out a customer’s $13,000 check is bad—after you have shipped them the product. Nevertheless, I enjoyed the control that came from using my own money.

My first exposure to the venture community occurred at the end of the Internet bubble, in the late 1990s. I was living in Austin and would wake up each Monday to read the tech section in the local paper. At the time, it was filled with news of companies that had raised millions of dollars, often with business plans that seemed almost ridiculous. To someone who had been funding his own companies for nearly a decade, the spending habits of many of these startups were crazy. They often appeared to have no real plan to make money, but they could spend it like drunken sailors.

While I still liked the control that came with self-funding, the opportunity to raise enough money to do a business “right” began to appeal to me. If VCs were pouring money into the operations I read about in the paper, surely I had a chance at getting some. Soon, I was putting together a business plan around a technical idea developed by my wife. The very first venture capital firm we approached loved the idea and wanted to fund. We then approached the biggest VC firm in Austin to try and get a competitive process going, but we never got an offer. No problem: My first VC pitch had been a success, and we had $11 million in the bank. This VC thing was easy.

Since then, I have had literally over 100 VC meetings and have never raised another dollar.

Why has it been so difficult? Are VCs biased against me? Were they all right to turn me away? Should I have taken the hint from repeated refusals and given up? My own experience suggests otherwise.

The exceptional team we put together following that first VC investment delivered a great run, taking the company from zero to $50 million in revenue in eight years (the same amount of time it took Microsoft to get to $50 million). We had thirty-one consecutive quarters of double-digit year-over-year growth. Things were going great, and we were beginning to think of an IPO when the mortgage crisis hit.

The week Lehman Brothers collapsed, we could tell from our data that the world had changed. Continuing to deliver double-digit growth was going to be impossible without some significant changes. I immediately went to the board with an idea. While we would survive the downturn with only minor cutbacks, other companies wouldn’t be so lucky. In particular, there was a public company in France that I thought would make a perfect complement to ours. Because of the downturn, their stock was at a very low value, and we could acquire the company for roughly one time annual revenue. This was a great opportunity to double the size of our company and be ready for an IPO when the market returned. All we needed to do was raise the cash necessary to do the transaction. With our track record of growth and profitability, raising money should be easy, right?

Unfortunately not. I reached out to and participated in conversations with forty-six different growth-equity firms. Many of these had already expressed interest in our company. At the end of all these conversations, we couldn’t find a single one to fund the combination deal. Thirty-one consecutive quarters of growth didn’t matter; when we needed the money, we couldn’t raise it.

Nine months later, in late 2009, we sold the company for nearly four times revenue and a tenfold return for our single investor. I had been handing these firms at minimum a triple, and likely a home run, if we had reached the public markets, but I couldn’t find a taker.

Okay, so maybe the explanation is simply that in 2008, it felt like the world was ending. Surely in more normal times raising money would be easy.

After the acquisition was completed, I got a call from a local VC about stepping into the CEO role at a struggling company. While I didn’t take the job — because I felt that the company was beyond saving — I thought that the technology might have some value.

A few months later, when the company went into bankruptcy, one of the founders approached me about buying the intellectual property and starting over. The previous investors had put $20 million into developing the technology, so the opportunity to buy the assets for $50,000 was quite interesting. We needed to move fast to keep the core team of developers from finding other jobs, so I quickly wrote a check for the assets and personally funded the first million to get going. I then started talking to VCs about providing additional funding.

While it was easy to start conversations, no one was willing to step up and write a check. It seemed easy to me: $20 million in prior investment combined with my winning record in a similar space seemed like a very fundable deal. But after six months of banging my head against the VC wall, I realized I had to try a new tack.

I reached out to my network of business associates and high-net-worth individuals and was able to put together a $6 million round that allowed us to finish product development and reach the market. Soon after we got to market, NetApp approached us with an offer we couldn’t refuse. Investors received seven times their money after having been in the deal for a mere eighteen months.

So, two swings at the plate and two home runs . . . surely the VCs would now beat a path to my door, right? Several VCs who had passed on the previous opportunity even reached out to ask if I might do another deal. It seemed that this time I wouldn’t have to worry about raising money. So I started my current venture, Khorus.

Rather than immediately trying to raise money, I made sure my idea would work first. I personally invested the first $2 million to develop the product and acquire the initial customers. Once I was confident we were on the right path, I again tried to reach out to the VC community for funding. To my surprise, I once again found that whatever the VCs I talked to were looking for, I didn’t have. I heard various reasons through the grapevine: It was different from what I had done in the past. It would be hard to sell. They didn’t see the value. And so on.

Were these VCs biased against me for some reason? I could have concluded that VCs didn’t bet on me because they don’t like balding middle-aged white guys with Southern accents. But I knew the more likely explanation: the VCs chose not to invest because they simply didn’t believe they would make a sufficient return.

I often see entrepreneurs complaining about various biases in the VC community, and pointing to them as the reason they can’t get funding. Of course VCs have biases. We all have biases that come to bear in our decision-making. VCs are trying to make as much money as they can for their investors, and they do this by trying to identify patterns that worked in the past and that might work in the future. Many VCs are not particularly good at doing this, as evidenced by the average returns of funds over the last ten years. But their decision not to fund your company probably isn’t for any other reason than that they don’t think it will make them money.

Don’t let that stop you. It certainly hasn’t stopped me. I have found some individuals who believe I will make them money with Khorus, and I am convinced there is another nine- or ten-figure opportunity here. In time, we will see whether that turns out to be true—or whether the VCs got this one right.


  1. As a fellow serial entrepreneur, I echo your observations of trying to pitch VC’s and crack the code of getting funding. I bet I have done 100’s of pitches to VC’s and like you, ultimately funding came through personal connections rather than the formal VC process. I did learn however, although the process is painful and VC’s are far from perfect in picking winners, I usually walked away a little smarter from each conversation/meeting that I was able to get. Like SharkTank, there are some valid business points made by the VC’s mixed in with all the other “polite” feedback. By nature, my personality is pretty level and matter-of-fact. I learned that a more animated founder who can generate (what seems to me to be) irrational excitement, has a much better chance securing funding. It really is too bad that the funding process is not more like a true job interview and evaluated based on the requester’s ability to deliver results as opposed to the popularity contest traits it has.

  2. Joel, what a great posting (as usual). The sharing you do of your (serial) entrepreneurial journeys are very helpful to fellow CEOs, like me. We have quite an exciting turn in our business and I’ll be pitching for big investment soon to capitalize on our play in the at-large very investable Internet of Things market. I’m sure I’ll face many rejections also, but I also believe we’ll find the right financial partner match to scale our business. Thanks again for your words of pragmatism and advice. Greatly appreciated! Melissa

  3. I think you should consider yourself lucky that the VC’s who didn’t fund you in the past didn’t get what you were trying to do and how you would make them money. I have experience with having the wrong VCs (people) involved in my first company, and that was painful.

    Like you, I didn’t come to the conclusion the tons of VCs who turned me/us down did so for any other reason than they didn’t think they could make money. Interacting with 1 of them post funding did make me think there were other biases and factors involved, but that’s another story.

    I’m banking on the VC’s being wrong again, especially because this time I’m along for the ride!

  4. Joel,

    Absolutely baffling – I can totally understand (but not agree with) the issue in 2008, but with your track record, it would seem that you could have found a VC backer for your latest venture – unless the world has shifted and the only companies that early stage VCs want to back these days are the ones that completely disrupt markets and turn into unicorns. 100x is the new goalpost.

    Me, I would rather make another attempt at building a business in an industry I understand. That said, I hope you thesis regarding middle-aged, balding, southern CEOs is incorrect as you are describing me as well 🙂

    …Tim Huntley (former CEO of Ganymede Software – acquired by Mission Critical/NetIQ in 2000)

  5. Vcs will for sure look and think “does this have an 8 to 10 percent chance of being a billion dollar company” – the (not very secret) Vc secret is their funds are always returned by one or two unicorns. I guess that If your businesses aren’t billion dollar ones. Most aren’t and don’t need to be / then the question is why keep going to vcs..


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