I was talking with an investor friend a few days ago, and he was seething over some of his experiences with different entrepreneurs. He posed a simple question to me:

“What is the true meaning of ‘soft circled’?”

Any of us who have spent time being an entrepreneur, working for an entrepreneur, or considering investing in an entrepreneur, know what this means. We’ve all heard these comments, or variations on the same theme:

“I’ve got $200K in new sales ‘soft circled.’”

“I was speaking the XYZ Venture Fund, and we have a ‘soft circled’ investment of $2 million.”

As we riffed on this idea and its various permutations, I realized that there is a thin line between entrepreneurial enthusiasm and outright lies. In my many dealings with entrepreneurs over the years, I have experienced this first hand. An entrepreneur will take an initial phone call with a VC and parley that into statements that the VC is “about to invest.”

Or they will look at their sales funnel, see 10 projects with an upper and lower range of revenue estimates for each, and instead of taking the lower estimates of 3 projects, they will take the upper estimates of all ten.

In other words, entrepreneurs are setting themselves up for failure, since success is now dependant upon getting 100% of the potential revenue from 100% of projects in the sales pipe line. There is no margin for error. Kind of sounds like the Airline Industry needing to book 101% of the seats on each flight to get close to breaking even.

Just because XYZ Venture Fund chatted with you, it does not mean the floodgates of cash are about to open. Just because a sales prospect has a problem your product solves and he’s expressed interest in your product, it does not mean the floodgates of cash are about to open.

There are many more steps involved to getting to close. And the more steps involved, the greater the chance something will go screwy.

And then there’s the biggest culprit of the “soft circle” phenomenon: People are nice.

That’s right! People are nice, and it sucks. Over the years I’ve seen the “Mean People Suck” bumper sticker on many cars. In my world, it is the nice people who suck, because niceness tends to screw up so many business dealings. Because people want to be nice, they often have a difficult time giving a firm “no” to an entrepreneur. Since the entrepreneur has not heard “no,” the entrepreneur, ever the optimist, continues to believe the sale/investment is imminent, and worse, the entrepreneur often uses the lack of “no” to try to get other people to jump in and buy or invest.

 There is a tyranny in being nice. Niceness often begets the path of stupidity. For those who do not know what the path of stupidity is, it is when every step you make is absolutely perfect and correct…but you’re walking in wrong direction. The process makes sense, but it will never lead to the intended result because you’re moving in the wrong direction.

Because I strive to provide a road map for entrepreneurial success, here is my handy dandy “Avoid the Tyranny of Nice People” translation guide:

•          If you don’t have concrete next steps, you do not have a sale/investor. What you’ve had is a nice chat.

•          If the momentum of the deal starts to wan, you do not have a sale/investor. I’m a big believer in momentum. If the initial call/meeting went well, but each and every follow up email/call is met with vague replies (or no reply), the potential deal is dying on the vine. Stop telling people the sale is “soft circled.”

•          If you are not speaking with the actual decision maker, you do not have a sale/investor. You’re chatting with an influencer. You need to talk with the real decision maker.

This said, the onus is still on the entrepreneur to properly and realistically describe the status of his/her company and its various deals, prospects, and engagements. I know from talking with other venture capitalists that the VC usually puts the words of the entrepreneur into a mental filter. While some optimistic exaggeration is always going to inhabit the words of the entrepreneur, the entrepreneur should take care to avoid being clumped into the VC’s mental spam filter. Be accurate, be precise, and be realistic, otherwise your words run the risk of being considered akin to emails touting investment opportunities in Nigeria (send me your bank account number please), on-line pharmacies, printer cartridges, and male “enhancement” products.

My VC101 columns were published on ePrairie.com and written in the wake of Venture Capital 101, a self published ebook about venture capital.  Send me an email, bill@billsnow.com

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