The Secret VC: startup red flags investors don’t tell you.

I’ll level with you: most investors won’t say everything out loud. We might nod through your demo, offer bland ‘timing’ excuses if we pass on investing in your company, and keep the sharper feedback for the call we have with other investors afterward. But since I’m sharing this info anonymously, I can provide a list of the real reasons founders quietly get filtered out by many venture capital firms.

Four red flags come up again and again and to make it easier for those who are here only for the CliffsNotes (possibly another red flag), they are:

- Chasing hype over customers

- Immaturity and entitlement

- Lack of awareness of back channeling, 

- treating fundraising like a transaction and not a relationship.

Each of these can torpedo our trust. And around here in the Midwest - where the ecosystem runs on reputation much more than runway - that can be game over.

1) Chasing Hype Instead of Customers

If your deck reads more  like a tech thesaurus - AI, Web3, “platform,” “flywheel” - but you can’t name the companies who are currently paying you and why they chose to do so, I’m out. We see this a lot: founders raising “for the sake of it,” not because customers are pulling the product out of them. That’s not momentum; that’s optics.

You should think of capital much like gasoline and your business as an airplane. Even for the lightest of places, you need to plan your journey by navigating and planning. If your plane has no destination and the frame’s not bolted on, then more gas will only lead you to crash, faster. Nothing more. Money amplifies whatever currently exists - which can be either a direction… or drift. When there’s a destination and - to extend the plane analogy - you’ve considered your navigation, mitigated dangers and have the right crew, then the fuel helps you get there and safely return. When there isn’t, it just accelerates the crash. In the business case, this should be real demand, and even the earliest signals of willingness to pay.

I’ve heard of founders who wanted investment primarily so they could pay back the money they’d spent on the business. I don’t begrudge anyone to get a return on their own investment, but that can’t be the basis of a fundraising round. Raising funds is not a means to legitimize your business. You raise to serve customers and build durability, not paper over the absence of them. Unfortunately, our startup and ‘bro-tech’ hype cycles mean most new founders are rarely taught this. In fact, many entrepreneurship courses don’t even cover the actual mechanics and tradeoffs of fundraising and equity, and that gap shows up in pitches. 

Here in the Midwest - for better or for worse - you’re dealing with customer proof and early sales over sizzle. “Early stage,” to me, is pre–product-market fit (PMF). You don’t need big revenue, but I’m looking for a believable movement toward it - well before fancy MRR milestones that imply real sales momentum.

How to de-risk this: ground every claim in a customer story. Show investors the repeated behavior you’re taking as a signal that what you’re building has some traction, rather than repeating buzzwords. The more your deck sounds like a press release, the more I assume there aren’t customers you can actually quote.

2) Immaturity and Entitlement

This isn’t about age. I’ve met 22-year-old CEOs with the posture of veterans and 45-year-old founders who ice out any investors or potential partners who tell them “no.” What I’m scanning for is entitlement - the belief that raising is a right you’ve earned by starting a company, rather than a responsibility you take on to better serve your customers.

Unfortunately, immaturity often only shows up after we pass. Some founders carry a chip, badmouth investors to peers, or hold grudges. In a community as interconnected as ours, that reputation boomerangs back to us via three calls before the week is out. And yes, when your name comes up in a partner meeting later, that context is on the table. The Midwest investor community is smaller than it looks on a map: the echoes travel, fast.

One practical tell we personally use to avoid making this mistake: how you react to any feedback you don’t like. Coachable founders treat a pass like a data point and get back to building. Entitled founders treat it like an insult and get back to tweeting. Same outcome in the short term, very different outcomes once the investor text message telegraph network lights up.

How to de-risk this: demonstrate receipts of growth in your own behavior. Come back to an investor who gave you negative feedback and show them how that helped you evolve: it could be your sales motion, marketing, hiring or product focus. Humility reads as maturity; maturity reads as lower risk.

3) Unawareness of Backchanneling

This is the quietest killer. Founders assume the only feedback that matters is what we say in the room. But investors talk to each other, constantly. We compare notes to avoid ‘bad apples’, and we try not to get swept up in herd mentality (not always the easiest thing to avoid). If we’ve done diligence, we’ll often share it if other investors ask. It’s not gossip; it’s our safety net.

Things go sideways for founders because they don’t realize that these networks even exist, or worse, they resent them, which reveals a dangerous blind spot. I’ve nudged founders we didn’t back toward better-fit capital elsewhere. If you bristle when you learn that I advocated for you to a different fund over ours, you’ve misread how the game is played. The founders who thrive understand the informal circuitry of the ecosystem and help it to help them get to where they need to, not take it personally.

Additionally, much of this activity doesn’t take place on LinkedIn… believe it or not. It's a common misconception that if we're not actively hyping a company, we're not working on their behalf. However, I've had numerous interactions with influential individuals: corporate leaders, university presidents or high-net-worth individuals, where I've advocated for companies in our portfolio, thus creating valuable connections that founders might not even be aware of. This hidden network is a crucial part of how our ecosystem functions in the Midwest, and a lack of understanding about it can sometimes be a red flag.

When this work is understood and appreciated, it deepens trust. When it is ignored or treated as meddling, it tells me the founder sees investors as tools to be used, not partners to be engaged. 

And that’s not a cap table I want to live on for a decade.

How to de-risk this: assume the backchannel exists (it does) and earn it. Keep a clean reputation with other founders, advisors, and early customers; those are the calls we make. When you spot helpful behind-the-scenes support, acknowledge it. Gratitude is not performative here; it’s strategic.

4) A Transactional Mindset vs. Relationship-Driven

The fastest way to lose a Midwest investor? Treat the raise like a visit to an ATM. Around here, money is the beginning of the relationship, not the end. We try to get involved where we can (and where it’s needed): hiring help, customer intros, office hours, and unglamorous in-the-trenches assistance that you can’t outsource. If you’re only interested in the wire and not the work, we’re a mismatch. 

You may find other investors - here or in other parts of the country - who are more transactional, and that’s fine. Our region is unapologetically relationship-driven. That’s not code for “slow.” It’s code for “durable.” We prioritize founders who communicate, who send honest updates (even when the news is not positive), and who invest in a community that has invested in them. Founders seeking purely transactional ties might be happier - and sometimes better served - by faceless coastal capital that’s structurally built for that type of outcome.

There’s a broader community angle for us here that applies to other investors as well. There is constant discussion about wanting to grow first-time founders into repeat founders, that we don’t have enough later stage deal-flow. But that takes ‘gardening’: How do we expect to bear the fruit, if we don’t plant the seeds? In other words, how can we expect to have mature second and third time founders if we aren't building a community that supports first time founders and educates them on how to be better founders?

Likewise, if we have seasoned winners who opt out of giving back, just wanting a check and for us to leave them alone, we lose that compounding effect. The flipside is also true: founders who lean into the “rising tide” ethos earn a long memory of goodwill, and that will show up the next time you raise a round or need assistance and advice.

How to de-risk this: behave like a long-term partner before the term sheet. Share how you communicate, who you listen to, and how you plan to engage local talent, customers, and peers. If you want Midwest capital, demonstrate an ability to nurture those local relationships.

A Simple Midwest Scorecard

When we’re deciding whether to invest - especially at pre-PMF - I ask four questions:

1. Are customers the hero of this story? If not, why raise at all?

2. Does the founder demonstrate maturity under friction? Entitlement is loud on a pass call and louder in the backchannel.

3. Would other investors vouch for this team? We’ll find out - because we do talk.

4. Is this a partner or a transaction? In the Midwest, relationship-first is the default setting.

If the answers skew the wrong way, we’ll most likely pass on the opportunity and I’ll share why when other investors ask. We compare notes to avoid crowd-think and keep the portfolio clean. 

Founders who understand that tend to build companies we want to fight for.

The Call-In, Not the Call-Out

If you recognized yourself in any of these notes, that’s a good thing. It means you have the self-awareness to understand where you may be failing, or succeeding, and that you can fix it. The red flags here aren’t terminal; they’re teachable.

- Replace buzzwords with real customer feedback.

- Treat “no” like a debugging log, not a personal slight.

- Build a reputation that does the talking when you’re not in the room.

- Choose investors you want in the trenches, then act like a partner.

The Midwest rewards founders who play the long game - on customers, on character, and on community. If you do that, the backchannel will become your amplifier, not your undoing. And the next time you raise, you won’t have to sell us on hype. Your relationships and revenue will do it for you. 

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‍The Secret VC is a genuine and experienced investor, based here in the Midwest. They will remain anonymous as long as they choose to, so please don’t ask us who they are. The goal here is to inform, and share some home truths while we’re at it. If you’d like to submit a topic or questions to be covered by The Secret VC, then go ahead and contact us here.