Note: We see too many entrepreneurs taking in venture capital without fully understanding what they're committing to -- which too often leads to disaster (for both parties) -- and said so a few years ago in an article called Startup Financing -- Why & How To Avoid The Investment Community. I think these two columns well complement (and reinforce) that article. Although written in humor, there's more than a little truth in everything he says -- on both sides of the table.

Lies, Damn Lies and Marketing Lies: Welcome To My World

Ever wonder what we high-tech venture capital firms do? I bet you think we spend our days searching for the next great Giga-Mega Networking Breakthrough, analyzing state-of-the-art technology and meeting with "insanely great" companies that are each "the next Cisco."

Wrong! Actually, we spend our lives in endless meetings with people who are lying to us. They line up at our door with their PowerPoint presentations, baying for attention or money. Some days it's so bad we have to disguise ourselves as Federal Express employees just to get into our office. If that's not irritating enough, they all come with their own nifty brand of chatter, known as the 10 Great Lies.

Lie 1: "The market is $2.5 billion today... going to $7.2 billion in 2003!"
What's your source -- Forrester Research? Be serious. Then, when asked about the 10 leading firms, you admit their total sales don't exceed $200 million. Anyone know a market where the 10 leading firms have just 10% of the market?

Lie 2: "Fidelity, Ford and GE have selected our product!"
No, they haven't. They may have agreed some day -- not too soon -- to let you run a free trial, but even then I doubt it. The only user is probably your investment banker, who hopes to do the IPO and buys one of everything. Some investment bankers, such as Goldman Sachs, have done more product endorsements than Michael Jordan. Call me back when someone puts your product into a production environment and runs the company on it.

Lie 3: "The other venture capitalists are behind us!"
Sure they are. They're so far behind you they're invisible. Your original venture team has bailed and you are hemorrhaging from every known orifice. What your venture guys want is someone -- hell anyone -- to put up some fresh money so they don't have to write down their investment.

Lie 4: "Cisco wants to be our strategic partner!"
You betcha. Cisco has more than 10,000 employees, almost as many as it has strategic partners. If every strategic partner of Cisco's brought in one can of food, we could cure world hunger. Furthermore, Cisco may be your strategic partner, but are you theirs? One of their top 10? Top 100?

Lie 5: "We have a world-class management team!"
Frankly, I haven't seen so many bozos since the circus left town. Your team hasn't been on anything other than an unending string of failures. You have more wannabes than Hollywood.

Lie 6: "We have no competition. And what little competition we have, we are kicking their butt!"
Your competitors have more than vaporware: They have products that actually work, a support desk where they take calls and customers who are continuing to buy. You, on the other hand, do have as nifty a set of four-color slides as I have seen all week.

Lie 7: "The Industry Standard is planning a major story about us!"
Righto. You are paying your public relations flack $15,000 a month to send out press releases that are never, ever read. Some publications heat their buildings by burning them.

Lie 8: "We are considering a public offering in the fourth quarter!"
You might be, but investment bankers have some standards -- er, scratch that -- and even so, the I-bankers won't return your phone calls within your lifetime.

Lie 9: "We aren't a business-to-consumer company; we are business-to-business!"
Actually, last month you were business-to-consumer, but nobody bought, so you did a quick fix and now you can claim to be business-to-business -- and still no one will buy. Really, you are a B2L company (born to lose).

Lie 10, "We are the new paradigm!"
Whatever the hell that means. If I had a dime for every company that has told me it was the new paradigm, I would be rich enough to pay Bill Gates' legal bill.

Lies Venture Capitalists Tell Entrepreneurs

My last column was about lies that entrepreneurs tell venture capitalists like me. ("Cisco wants to be my strategic partner," "The market is going to $7.2 billion -- and we will get 20% and so on). That piece generated an outpouring of positive reader feedback, so this month, I thought I'd follow up with a list of the Top 10 lies some venture capitalists (not I, of course) tell entrepreneurs:

Lie 1: "Our money's different!"
What we really mean is that you should reject other venture capitalists' better terms because we are going to spend a lot of time "helping" you. Miss your ship dates and we will give you all the help you need... to find a new job.

Lie 2: "We are sending in the term sheet -- sign it, and we're on our way"
To where? The term sheet makes you stand still so we can do the due diligence we were too lazy to do in the first place. We will talk to every customer, every supplier, every competitor --- and in the meantime, you can go suck eggs for 30 days while we figure out how to wiggle out of some of the terms.

Lie 3: "There is no need for us to sign a nondisclosure agreement. No one in the industry does!"
In other words, tell us your innermost secrets and we promise to... never forget your generosity.

Lie 4: 'We can help you negotiate with the investment bankers!"
You betcha. We owe Goldman big time for the turkey we sold it last month... and you are the "make good". Besides, Piper Jaffrey gets me all that "Friends and Family" IPO stock... so our short list is going to be very short.

Lie 5: "We can help you recruit a world-class board of directors!"
Actually, we will get other CEOs who we are backing to sit on your board. We especially like CEOs who still need our money. But you can bet they will be independent of our wishes.

Lie 6: "We should do a 'D' round now right before the IPO just in case!"
In case you didn't realize that we are stuffing more money into your company because we know we can make four times our money in 90 days, which is a "fair" return.

Lie 7: "We want to put in our money in Redeemable Participating Preferred of course."
We have terms so arcane that the Supreme Court couldn't understand them. What we mean is we will put in our money on Monday, then float a loan for you that pays us back on Thursday, but keeps our ownership at the same ridiculously high level in case you make it. But if you don't, we get paid four times our investment before anyone else does. Got a problem with that?

Lie 8: "You will have me on your board and can think of me as a full-time advisor!"
Actually, I am on 12 or 14 boards, and I spend half my time looking for new deals. So you will see me about seven days per year, unless you put in videoconferencing, which means you can see me juggle two telephonic board meetings at the same time. But I will send you my picture to hang over your desk.

Lie 9: "We will help you raise your next round at a much higher price from the corporate investors!"
Yes, we will. We will give you a directory of people with more money than brains ... and when you fail, we will do a down round to screw the other venture capitalists who didn't have the nerve to play in this one. We get more fun out of screwing over other venture capitalists than we do screwing over you. Hard to believe, isn't it?

Lie 10: "I want you to meet another of our CEOs. There's great synergy between the two companies!"
As bad as you are, they are worse. Either we sell this turkey off or have to take a writedown. So you are elected.