Let me explain with a hypothetical.

Imagine AcmeCorp, a new startup.  Jack and Jill are the founders.  They incorporate and give themselves each a million shares – in other words, splitting the company fifty-fifty.

The next day, Jack has a change of heart.  Startups are a lot of work!  He quits AcmeCorp and takes a cushy executive gig at a fortune-500 tech firm.  Jill’s left solo.

Years pass.  Jill first works without salary, then pays herself a pittance.  She bootstraps the company, starting with consulting and moving on the develop a highly successful web service.  As she brings on staff, she issues stock to new employees, ultimately handing out a half-million shares of the company.  Eventually she’s the CEO of a 50-person firm, pulling down a respectable $200k per year as the CEO; nearly as much as Jack’s pulling down at his gig (not including his benefits and bonuses).

When the company is finally sold, it’s a great success – $100mm exit.  And here’s what happens.

For her million shares, Jill gets $40mm.
The employees’ half-million shares net them $20mm.
And Jack?  He gets a call one afternoon that, for sitting on his duff for the past five years, he’s worth a cool $40mm, same as Jill.

Obviously something’s wrong with this picture.  The crux of it is that, with stock grants, value is awarded in a big block at the beginning, even though the contribution is (or isn’t) provided over a long period of time.  It would be like if you paid someone four years worth of salary in a lump sum on their hire date.  The obvious solution, of course, is to not issue all the stock at once.  Instead, treat stock like salary – give it out in small chunks over time.

Unfortunately this is a terrible idea.  As time goes on, the stock gets progressively more valuable, and the tax impact to the founders gets worse and worse, plus the strike price (if they’re options) gets higher and higher.

As I’m sure you’ve gathered by now, the solution is – vesting!  The founders get their stock at the beginning in a big whack, but the company has the right to take it back for a negligible amount of money (the “repurchase agreement”).  As time goes on, that right erodes.  So the net is the same – the founders’ stake grows over time – while still letting the founder keep ownership of the stock from a legal standpoint as it appreciates, allowing long-term capital gains treatment, favorable initial tax treatment, voting rights, and all that jazz.

“But wait!” the novice founder cries out.  “If I build lots of value and sell the company, I get the shaft! My stock may not be vested, and I’ll lose out!”  Yes you will, young padawan, unless you include acceleration in your vesting schedule.  Acceleration is the final hack to the hack, which brings the force back in to balance.

Acceleration comes in two flavors.  Acceleration on change of control (aka single-trigger acceleration) means that if the company is sold, some or all your stock vests.  Yay! Double-trigger acceleration means that if the company is sold AND you’re fired, then some or all of your stock vests.  Sort of yay!

The former is obviously better for the acceleratee, but keep in mind that a deal may be hard to get done if the acquirer knows that all the stock incentives to stick around disappear when the deal closes.  Double-trigger, or a mix of single- and double-, is often a nice compromise to keep the company marketable (a few years down the road) while rewarding people for their hard work.  This is often more of an issue for employees (who join later, and will still be vesting when a transaction happens, and who can’t leave en-masse if the transaction is to go through).  For reasons of company lifecycle timing, founders are usually fully vested already by the time a deal happens.

Regardless, the important thing is this: founder vesting is founder friendly, the exact opposite of what most people think.  You want it.  Don’t fight it.  In fact, don’t wait for an investor to tell you that you need it – get it done when you incorporate.  Just remember to pair it with acceleration on change of control!

And now, some suggestions for vesting schedules.

• Use a four-year vesting cycle for founders, the same as you eventually will for employees.
• Put founder vesting in place before you start to raise money.  Investors will be impressed that you know what you’re doing.  If your vesting terms are reasonable, they’ll be accepted without argument.  And when you’re negotiating terms, it’s better to have fewer things that matter to you on the table.
• If there’s a “trial period”, for example people working part-time for a few months, then consider a cliff that expires after the trial.  That means the first vesting doesn’t occur until the trial period is over (and then you vest a lump of however much you would have received anyway).  Stock is best used for people who are totally committed, so the stock accumulation shouldn’t kick in until the commitment does.  The obvious exceptions to this are strategic advisers who will only ever be partially committed, but where that level of commitment is all the company wants and needs.
• If there’s a meaningful commitment of resources in advance of the vesting agreement, it’s reasonable to “fast forward” the agreement by an appropriate amount.  For example, if you’ve been working full time for a year before vesting is in place, it’s not unreasonable to start with 1/4 of your stock vested already and put the rest on a 3-year schedule.
• Stock that’s in payment for resources doesn’t need to vest.  For example, if the company is split 50/50, but then one founder puts in $100k in exchange for 10%, then the 10% that they get should not vest.  Since the value is delivered up front, the stock should be too. (Obvious corollary: investor stock has no vesting terms)
• For founders, accelerate 50% of the remaining unvested stock on change of control (single-trigger), and 100% of the rest double-trigger. This is totally reasonable and fair, and makes it very unlikely that you’ll leave much value on the table.
• It is generous, but not unreasonable, to consider double-trigger acceleration for some or all of your employees.  However, you may cause yourself problems during M&A down the road – check with your lawyer first.
• Try to avoid single-trigger acceleration for non-founders whenever possible.  Not only is it sure to cause issues during M&A (the acquirer will be worried that everyone vests & leaves after the transaction), but an acquirer may make changing these terms a condition of a deal, which just leads to ugly.
• Get the legal paperwork for your stock agreements sooner rather than later, to start the capital gains clock ticking.  This can easily be a seven digit difference if you happen to have an early exit (ask me how I know).
• Edit: File your 83(b) elections the day your incorporation goes through. You have 30 days to do it, and then you’re screwed forever.  If you’re not sure if this applies to you, ask your lawyer.  If they’re not sure, fire them and hire someone else.  This is one of the most common, avoidable, and expensive mistakes founders make (thanks for the reminders about this in the comments!).
• One last thing: the founder vesting arguments assume multiple founders.  If you’re a solo founder, you might skip founder vesting, and hope no one notices…

Founder vesting may sound terrible , but when paired with reasonable acceleration, it’s a good thing for everyone.

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That’s not the amazing part.

Lightsail makes regenerative brakes for the power grid.  You know how your* Prius takes the power from the brakes when you don’t need it, and dumps it back in to the engine when you do need it?  Lightsail does the same thing for energy plants that can’t scale their production quickly with the needs of consumers, not to mention greentech like wind and solar that creates power when Willard Scott says so.

Still not the amazing part.

So where are the startups you know headquartered?  Someplace cool and funky, right?  We put Ontela in the Smith Tower, the tallest building west of the Mississippi (until the disrespectful hooligans in the midwest built the Kansas City Power & Light Building in 1931).  It was fantastic!  But Lightsail?  Forget that.  Check out where they call home.

The Lightsail Firehouse

Oh yeah.  Remind you of anything?

The Ghostbusters Firehouse

And you know what?  We’re still not at the mind blowingly awesome part yet.  Because you know what they have in the basement?

Oh yes.

Bravo, Lightsail.  Bravo.

Urgent Addendum:

Danielle informed me after publication of this article that they have vacated the Ghostbusters firehouse and moved to a chocolate factory.

I rest my case.

*(I’m assuming you have one, because everyone else seems to.  Personally, I drive a 2004 Scion Xb, in which the only thing regenerating is the dirt on the floor mats.)

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In this case, the recipient of the bogus intro was the panel moderator, Rebecca Lovell. Just in case anyone out there in startupland has not  met Rebecca, she’s one of the best-connected people in the Seattle tech scene, with a resume that includes leadership roles at the Alliance of Angels, NWEN, and now Geekwire.  These would all be appropriate topics to use when introducing someone, man or woman. Here’s what the man introducing Rebecca chose to say instead (you can listen to the full audio of the introduction for context):

Rebecca’s one of the smartest ladies I know, and I thought that she was a perfect pick for the role of moderator.  When we selected Rebecca and she said yes, she was a sexy single woman. And since that time, she’s become a sexy married woman, and so I wanted her lucky new spouse to stand up.  So we’ve got not only a very talented, but a happy moderator.

Come on, people.  Really?

This has been bugging me for a while.  I was coaching one team for Techstars Demo Day, and they had a photo of scantily clad women (that had nothing to do with their pitch) that I convinced them to strike.  Two months ago, a company I was coaching showed up for a meeting with me at Google and made a comment about the receptionist’s appearance.  Within earshot of her.

Everyone has a reason.  One person was older.  One person was from another country.  It just doesn’t matter.  If we keep this bullshit up, we’re going to crap all over another generation of women tech entrepreneurs.  And it’s just a rotten thing to do. Think before you open your mouth.

And if you see someone doing this, call them on it. I didn’t… that was my nervous laughter in the background of the recording.

Better late then never.

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500 Startups is an interesting beast.  The fund has $29MM under management with over 250 investments, only half of which are in the valley.  Companies came from as far as Japan (cloud data processing) to Brazil (educational test coaching).  Here’s some of the companies that stood out to me:

TinyReview was super cool – like instagram + twitter + yelp.  You go somewhere, take a picture, and put 3 extremely short lines of text on it – two or three words per line, tops.  Looks like fun, good traction, and the service just feels like something people will enjoy playing with.  But I’m skeptical of the positioning as a review site.  My top use for a review site is to recommend stuff – not actually clear to me how you use microhaikus to find a great restaurant, unless you’re just reading a lot. It looks like a great creative palette but not like a great reviews site.

The concept behind Spinnakr is great.  They do lots of crazy analysis on a per-user basis and help you customize your content for the actual human being doing the visiting.  Bit creepy.  But the pitch is golden – a job site can highlight jobs that are relevant to you.  A news site can bubble up information that’s relevant to you.  They make a strong claim that the big sites are doing this already, so they can bring the same tools to the little guys.  The founders have a cool background too – fundraisers from politics who are experienced with targeting and what it does.

Switchcam is, in their own words, “blowing people’s faces off”.  These guys scoop up a bunch of online videos of events and stitch them together.  Imagine watching a video of a concert, as filmed through a dozen camera phones – complete with pans, cuts, and even the ability to grab the director’s chair and pick your “camera angle”.  Love the technology.   Not so in love with knowingly hosting large quantities of pirated content, and automatically categorizing it for easy takedown notices.

MeMeTales has a special place in my heart because they’re an ex-Seattle company that I mentored in the first Seattle Founders’ Institute class.  Maya is awesome, and she moved the company down to the valley (boo, hiss) to take 500s funding and really grow the business.  They’re doing online and mobile storybooks for kids – great growth, and spectacular stickiness with an average session length of 29 minutes.  The books look great; I was particularly partial to “Richard was a Picker”, about boogers.

Postrocket says they’re like SEOmoz for Facebook.  In English, they optimize facebook posts to make it more likely that a given post on Facebook gets seen and “like”‘d.  I didn’t catch quite how they do this, but they have a great story that includes dropping out of college to go on a 46 hour Boston-to-Palo Alto pilgrimage to the valley to start the company.

Fitocracy gets marketing: they’re about fitness, so they showed photos of the founders, before/after, chubby/sleek, XXL-t-shirted and… yes, shirtless.  The only thing they left off their pitch (and I can’t believe they did) was their own XKCD comic (http://xkcd.com/940/).  Nice way to game-ify fitness.

GoVoluntr has the distinction of being the only startup pitched by an actual Got Milk ad model.  But they had a great pitch: former Starbucks guy has hard numbers that community involvement drives growth and revenues.  So they get businesses to donate products and services to people who are volunteering, and provide tools to help volunteers track their engagement and pick up perks from participating companies.

All in all, a solid showing – 32 companies, plenty of which show loads of promise.  Great work to Dave and team!

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Subject: Small taxi company looking to expand

Hello,

I run a small taxi company outside of Boston Massachusetts. My community has been targeted for casino development and I am looking to expand my business. Could you possibly provide some advice on how to find venture capital?

For someone who lives in the startup world, this looks pretty silly.  But I’m sure I’d say a lot of silly things if I were getting in to the taxi business, too.  So I figured I’d point him to a simple explanation of why taxi companies (actually, services companies in general) aren’t appropriate for VC.  I did the Google thing for a bit to find a good article.  And no luck.

Well, you know what they say: when the internet fails you, make more internet.  Here, then, are a very good set of reasons not to take venture capital (or – why venture capital won’t take you).

1.  You want to build a profitable company

First day of Founder’s Institute I ask how many people want to raise venture capital.  Most of the hands go up.  I then ask who wants to build a profitable company.  Again, most hands go up.

The funny thing about this is – VCs don’t actually like their companies to be profitable.  Someday, sure, but not on their watch.  You see, profitability means that the company wont grow any faster.

This seems odd, but think about this for a minute. At the early stages, a company may be making money, but it’s almost certainly investing every penny it makes back in to the business.  If it has access to outside capital (e.g. a VCs), it’s investing more than it makes.  And that’s exactly what VCs like: companies that can grow at amazing speed, and never slow down their burn rate to amass cash.

They like this for two reasons.  First, VCs want to invest in companies that can grow explosively.  That means huge markets, executives who can scale up a business fast, and a willingness on the part of management to double down on a winning bet – over, and over, and over again.  Second, because it means the company keeps coming back to the VC for more money on positive terms.  That means the VC keeps getting to buy more and more of the growing concern.

Of course, this is something of an over-broad generalization.  I’m required to include one per post or I lose my startup blogging license.  In fact many venture backed companies are profitable, it’s very impressive to bootstrap your company to profitability in a few months before raising outside investment, etc.   But if you are excited about a profitable business that can cut you giant dividend checks (not that most VCs can even accept divided checks  - long story), realize that VCs will not be pleased with that approach to running the business.  They will want you to plow those earnings back in to the business.  And when the day comes that a VC-backed business generates cash faster than it can effectively spend it?  They sell the company, or IPO (which is technically also selling the company), or replace the CEO with someone who can spend faster.

A taxi business should be run for profits.  That’s not VC style.

2. Your business has reasonable margins

As a general rule, VCs don’t like reasonable margins.  They are exclusively interested in outrageous margins.  Ludicrous margins.  We’re talking about sneering at 50%, and hoping for 80%, 90%, crazy astronomy stuff.  Venture capital is all about investing a little bit of money to create a business with massive scale and huge multiples – investing tens of millions to build software that then can be duplicated or served up for virtually nothing extra per-person with a total market size of billions.

In particular, VCs don’t like businesses that are people-powered.  Software businesses are awesome, but their evil twin – software consultancies – are near-pariah to VCs.  If adding revenue means adding bodies, they don’t like it.  In fact, enterprise software companies, which can tread a fine line between software consulting & software development, sometimes get really creative to come down on the right side of the line.

So the rule of thumb is that VCs like product companies: software, drugs, cleantech, and so on.  And they don’t like the manufacturing, service industry, and consulting businesses that often are just a tiny shift of business model away.

Every new taxi requires a… well, a new taxi.  And a new taxi driver.  Not the right business for VC.

3. You are going to double your investors’ money

I’ve covered this before, but VCs really don’t want to double their money.  Strange though it sounds, their economics make that look like a failure.  They need to target a 10x return on their investment, and that means – depending on stage and fund size – that you company has to grow to somewhere in the hundreds-of-millions to billions range to be interesting.

That means taking your taxi business from $20MM in annual revenue to $40MM just doesn’t do it for them.  Particularly because the valuation multiples on the aforementioned lower-margin businesses are smaller.

4. VCs probably don’t want to invest in you

Here are the people VCs really love to invest in:

• Entrepreneurs who’ve already made them lots of money
• Their closest buddies

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a) have acute leukemia, and

b) be South Asian.

The problem with the first one is obvious.  The problem with the second one is that the life-saving marrow transplant that Amit needs requires a donor with a similar genetic makeup, and South Asians are dramatically underrepresented in the registered donor pool.

I read the amazing page dedicated to finding Amit a donor, and thought back to 1995.  I was in my second year of college and there was a blood drive.  A representative from the National Marrow Donor Program was there near the cafeteria in the quad while I was donating.  She explained the marrow registry and asked me to sign up to be considered for a match for a marrow transplant.

At the time, the only way to donate marrow was to basically have someone drill holes in your bones and drain your skeleton, which kind of terrified me.  Nowadays, of course, most donations require nothing more than sitting still for a few hours with an IV watching television.  But after a lot of introspection, I decided that it was a rare occurrence in this world that you actually get to save the life of a stranger, and if skeleton-draining was the price of that, then so be it.  I was also reassured that most folks are never matched with anyone.

Back to Amit and the present, it was clear that my genetic makeup wasn’t going to be much help for him.  But I went over to marrow.org and looked around.  I learned that it’s ridiculously easy these days to get tested and not very hard to donate if you’re matched.  Despite this, the need is skyrocketing.  Half of the people who need marrow transplants can’t locate a donor.

Then I realized – crap, how the heck are they going to get a hold of me if there’s a hit?  All they have for contact info is my college dorm address!  I can’t help Amit, but maybe I could help someone else in need.  So I fussed around with the website to update my contact data.  I couldn’t figure out how to find my old record, so I made a mental note to try and call them some time, and gave up.

Allow me to digress one more time before I get to the point.  Five months ago I sold my startup, Sparkbuy, to Google. There were mountains of paperwork, and one bit that didn’t get wrapped up nicely was mail forwarding.  Not email forwarding, mind you, but good, old-fashioned, paper-cut-on-your-tongue-from-sealing-the-envelope mail.  I submitted the change of address request, but for some reason, mail piled up in my old office.  They nagged me about it every few weeks.  I procrastinated. After many months I finally went and picked it up.

Today I was sorting through that mail.

Did you know that, when the marrow donation center finds a match, they try desperately to reach the potential donor?  Even if that person has moved from their dorm room long ago, even if their contact information has changed, even if they’re in a different state, even if 16 years have passed?  They try.  They look all over for ways to reach that person.

Almost 5 months ago, they found a match, and sent me a letter to the only address they could find for me.  To my old company.

Today I read it.

I called immediately, of course.  They said that they’d contact the patient’s doctor right away.  But they told me the odds were good that, since 5 months had passed, “they found another match, or that the patient… is no longer eligible.”

Joining the registry is free and requires nothing more than a cheek swab.  Please join.  If you’ve joined before, please update your contact information.

www.marrow.org

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Honey, you've got a little schmutz on your punim

These are the fateful words my mother would utter right before licking a napkin and going in for the cleanup.  A kid’s adorable with raspberry juice on his face, but your business should put its best foot forward.  JPEG artefacts are not adorable, and while most visitors won’t notice them consciously, it just mucks up your image.  (Update: commenter grishick points out that Sprouter has polished up their logo right nice.)

Allow me to demonstrate.

Schmutzy JPEG:

Let me get that off your face:

Not a dramatic difference, to be sure.  And I made it a bit more egregious by cranking up the JPEG compression on the first version, although I’ve seen worse.

But it’s funny the subtle cues that signal “Real, grown up company” versus “Raspberry-stained toddler company”.  This one’s cheap and easy to fix.  Use your logo as a PNG, which offers lossless compression, and not a JPEG (or, heaven forfend, a GIF).  Go check right now.  Check the properties of the header on your home page.  PNG images across the board?  Good to go.  JPEGs?  Have a little chat with your designer and get the PNG versions.

One minor point: JPEGs offer better compression in some circumstances than PNGs, so keep an eye on your page load times.  But most logos compress well as PNGs, often better than as JPEGs – this may wind up as a win too.

So wipe the schmutz off your logo.  Your bubbe will be so pleased.

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Reason 1: Not every investor is the right investor for you

Asking for introductions to “investors” marks you as someone who doesn’t really know what they’re doing.  An investor/company match is very specific, and if you want to find your fit, you’re going to have to figure out what you’re looking for.

Most investors specialize in certain fields.  Some will invest in early stage companies, some later.  Some will invest in entrepreneurs they’ve just met; some will only invest in people they’ve known for years.  Some require a track record and grey hair; some like betting on smart people straight out of college.  Some invest big, some small.  Some do just a few investments a year, some do hundreds.

Furthermore, investor styles differ.  Some give you tons of room to maneuver; some like to work closely with you.  Some offer tons of help and advice; others are just about the cash.  Some will want regular updates; others don’t like to be bothered.

Before you start looking for investors, figure out what kind of investors you want, and what kind of investors will want you.

Reason 2: It’s lazy and rude

Somebody has to be the matchmaker.  That means thinking about your startup, then comparing it to every investor your contact knows and decide if it’s a fit. The right person to do that (or at least take a first pass at it) is you, since you know your company best, and only you know who you’ve already talked to.  You do this by researching your contact on Linkedin to figure out who they know, then researching those investors to see who’s a good fit.  Check their website, their portfolio, their blog – get a sense of what they look for, and cross them off the list if they already have competing investments.

Sound like a lot of work?  It is.  That’s why you should do it, not your friend.

Reason 3: They’ll give you a crappy introduction

Asking for an introduction from someone who doesn’t know you well yet never works.  If you haven’t pitched your contact and sold them on how awesome you are, there’s no way they are going to convince an investor to take a chance on you.  That’s because they’re going to have to tee up the intro, and if the nicest thing they can say about your company is that it “sounds interesting”, the intro isn’t going to go anywhere.  You want them super-jazzed about what you’re doing, and more importantly, you want them to be able to deliver a summary of your company in one or two sentences.  So give them the pitch and ensure they love it.

Note that this all implies that you can summarize your own company in one or two sentences.  This deserves an article of its own.  Actually, it deserves a book of its own, and that book is “Made to Stick”.  If you’re stuck, go read it.  But I digress.

A great investor intro is about conveying enthusiasm.  So you need to sell them, then give them simple tools to sell the investor.

The right way

Step 1: Do your homework.  Before you meet your contact, have an explicit list of 1-4 people you would like an intro to.  And this is definitely about people – it’s better to ask for an intro to Bob Smith than it is to ask for Acme Investors.

Step 2: Pitch your contact first.  Treat them like an investor, even if they’re not.  Good first-pitch rules apply: don’t teach them; tease them.  Show them just enough to get them to want more.  Be sure to hammer your one or two line summary a few times so they know it.

Step 3: The ask.  Say, “If you wouldn’t mind, I’d really appreciate introductions to A, B, and C.  Can I shoot you an email with a one paragraph summary of the business that you can forward along?”

Step 4: The reach. NOW is when you say, “And are there any other investors you can think of that I should be talking to?”  You’ve done your homework, they know about your business, it’s OK to ask them to ponder a bit to see if you missed any one.  And it’s easy for them to say,  ”No, your list is great” – you’re not obligating them to come up with any one.

Step 5: Followthrough.  Immediately after you step out of the meeting, send separate emails – one for each invitation request – that say something like:

Hello <contact>!  Thanks for taking the time to talk today.  Your perspective on the business was really helpful.  I appreciate you offering to connect us with <investor> – feel free to forward this email to <him/her>.  I’m including a brief description of us below.

<<brief description of business>>

Again, do one per investor, so they can easily forward each one to the right person, hopefully along with a little note that says you’re not a bozo.

Fundraising is hard

Look, I’ve been there.  Fundraising is daunting.  Actually, terrifying.  You want to be able to just get it done, so you imagine that it’s possible to just ask around, meet some nice people, wow them with your charm/business plan/demo, and get on with building your company.  And sometimes it is.

But it’s usually not.  And the teams that invest the most in fundraising seem to have the best results.  (Well, the teams with huge traction or great resumes have the best results, but if you’re killing it on those fronts, you’re already cashing investor checks). If you’re a new team with a demo and a dream, you’ve got a lot of work cut out for you.

So don’t shy away from it.  Learn your network’s network, ask for smart and specific intros, and you’ll meet your dream investor soon enough.  Happy fundraising!

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VCs will charge all reasonable expenses associated with board meetings to the company they are visiting. This usually isn’t a big deal unless your VC always flies on his private plane and stays at the presidential suite at your local Four Seasons hotel. In the case where you feel your VC is spending excessively and charging everything back to the company, you should feel comfortable confronting the VC. If you aren’t, enlist one of your more frugal board members to help.

This advice is great, but things can sometimes get hairy – you may not have a frugal board member who wants to challenge your large-living board member on the topic.  I had a similar situation at a past company, and while it never occurred to me to ask another board member to help, we came up with our own solution.

Without placing any blame, we wrote up a reasonable travel expense policy for the company.  We then brought it to the BoD and asked them to approve it.  I explained that expenses were getting a little out of hand, and we wanted to reign things in.  I then said the magic bit – “Since this will apply to everyone submitting expenses, including me and any other board members who are traveling, I wanted to have it officially adopted by a board action.”  It was approved without any fuss.

The policy clearly stated that, for example, that the maximum reimbursement was the cost of full-fare coach.  So when a first class ticket came in, we priced how much the coach ticket would have cost, and that was the amount of reimbursement sent.  The board member’s admin asked why the full reimbursement wasn’t included, our comptroller explained, and the whole thing was quietly* solved with no bruised egos.

*some might say passive-aggressively

Postscript: Some folks in the comments have shaken their firsts at VC’s greedy ways.  I should note:

1. This person was a really great guy, and I’m sure wouldn’t have done this if he knew how much it bugged me (part of why I wanted to spare him the embarrassment of confronting him about it).
2. It’s possible that he didn’t know about it; he had an admin, and admins will often handle upgrades (complimentary ones). Many see their job as taking care of their boss, not their boss’s portfolio, and may book first (while the VC thinks they just got a comp upgrade).  I’ve known this to happen at least once.
3. People like to dig on VCs, but the ones I know are almost entirely great folks, which is saying a lot for a job that consists of saying no to 99.9% of the time.

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In one section, they discuss the “business plan”:

“We haven’t read a business plan in over 20 years. Sure, we still get plenty of them, but it is not something we care about as we invest in areas we know well, and as a result we much prefer demos and live interactions…. However, realize that some VCs care a lot about seeing a business plan, regardless of the current view by many people that a business plan is an obsolete document.

They go on to caution you:

Regardless, you will occasionally be asked for a business plan. Be prepared for this and know how you plan to respond, along with what you will provide, if and when this comes up.

Unfortunately, this is where the topic ends – they don’t tell you what to do when an investor requests that you conjure an obsolete 30-page document from the ether and send it to them that evening.

A straightforward executive summary

I’ve been in this situation, and it’s very disconcerting.  With my first company, Ontela, we pitched about 70 VCs for our Series B.  More than half of those were in person, and not a single one asked for a business plan.  We talked to dozens of VCs (I didn’t keep track of how many) during our Series A as well, and got zero business plan requests.  But during Ontela’s seed round, when we pitched probably 100+ angels, it came up more than a few times.

Whenever it did, we (“we” was usually my cofounder Brian Schultz and I; Charles Zapata, the third cofounder, was busy building product) were somewhere between guilty and scared.  Guilty that we had skipped something that was clearly important, and scared we’d look like idiots.  There was a lot of hemming and hawing before we figured out a foolproof solution.

Whenever an investor asks you for your business plan, send them the same damn packet you send to everyone else.  In our case, that was a 3-page “executive summary” and a dozen slides giving an overview of the business with some screenshots of the product (it was mobile, and 2006, so there wasn’t any easy way to send them a demo). Don’t apologize and don’t mention the business plan.

We did this at least a dozen times and had precisely zero complaints.

One final note: investors who want business plans are probably not your target market, if you’re founding a high growth technology startup.  We had lots of great followup conversations with the angels who wanted them, but ultimately none of them turned in to investors.

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