The World of Venture Capital: Part 2

Why Startups Lie to VCs and Why VCs Pretend to Believe Them?

In a coworking space in Gurugram, a founder walks into a meeting with a pitch deck that claims a $10 billion Total Addressable Market (TAM)*, 400% year-on-year growth potential, and a “world-class AI engine” ready to scale across India and Southeast Asia.

*TAM refers to the total market demand for a product or service, representing the maximum potential revenue opportunity if a company were to achieve 100% market share.

The investor nods. They’ve heard this before, this week alone. Still, the founder leaves with a soft commitment.

The truth?

There’s no AI engine. The TAM is a stretch. And the growth potential is optimistic at best.

But that’s not what matters, not in the first meeting, not at early stage, and certainly not in venture capital.

Because at early stages, data is scarce. Faith is abundant. And storytelling becomes the currency.

Welcome back to The World of Venture Capital. In Part 1, we uncovered how venture capital shapes the world we live in. Today, we go inside the pitch rooms, where theater often takes precedence over truth and where both founders and investors knowingly play a game of high-stakes bluffing.

Startups Don’t Always Lie… But They Definitely Stretch

When you’re pitching a VC, you’re not just presenting an idea, you’re performing a belief.

Most early-stage founders:

• Exaggerate the size of their market

• Inflate user numbers or traction

• Suggest future partnerships or pilots that may never materialize

• Downplay risks, burn rate, or dependency on a few clients

• Hype tech that barely works

It’s rarely out of malice. Often, it’s survival.

Founders are in a race, not just against competitors, but against time. And when fundraising becomes the only thing standing between a startup and the end of the runway, the pressure to appear investable can warp the narrative.

Call it confidence. Call it optimism. But in the venture capital world, a little bit of bluffing is seen as part of the game.

Why VCs Play Along (And Bluff Too)?

Now, here’s the twist: most VCs know when they’re being bluffed. And many choose to play along.

Because:

• They don’t want to miss out on a hot deal

• They assume everyone is bluffing to some degree

• They rely on social proof (if another good VC is in, it must be worth it)

• They don’t want to appear slow or uninformed

Just like founders bluff in decks, VCs bluff in meetings:

• “We’re super excited” = “We might pass”

• “Let’s stay in touch for the next round” = “This isn’t for us, but we don’t want to say no”

• “We’re talking internally” = “We’re waiting for someone else to lead”

This isn’t cynicism. It’s pattern recognition. The early-stage world is murky, emotional, and uncertain and the tools VCs use to evaluate founders often rely more on instinct than spreadsheets.

The Real Criteria: What VCs Look For in the Bluff?

So if everyone’s bluffing then what separates the winners?

Great VCs know how to look past the deck and assess the founder:

• Clarity of thought: Can the founder simplify complexity?

• Founder-market fit: Do they have the grit and edge to survive this space?

• Speed of learning: Can they absorb feedback, iterate fast, and pivot if needed?

• Energy + credibility: Do they own the room without overselling?

Ironically, authenticity, even with a layer of pitch gloss stands out more than trying to be perfect.

The FOMO Factor: Fueling the Bluff Spiral

A founder mentions Sequoia might be looking at the deal.A VC doesn’t want to miss out, so they express interest.That interest is then used by the founder to attract another VC.

Suddenly, a round is oversubscribed and no one really knows why.

This is social proof investing and it’s very real.

FOMO (Fear of Missing Out) has driven some of the fastest, riskiest investments in history. It’s also why terms like “AI-powered”, “community-led”, and “climate-scale” appear in every deck, even when irrelevant. Investors chase signals, not just sense.

And when reputation is at stake, VCs would rather make a bad bet than miss the next Flipkart or Meesho.

So, Is This All Just a Game?

Yes but it’s a game that sometimes works.

Many legendary startups started with nothing but a pitch and belief.Sometimes, bluffing buys time for real innovation to catch up.Sometimes, fake traction becomes real traction.

But the game has rules:

• Bluffing must be backed by real intent and execution

• VCs may forgive exaggeration but they don’t forgive stagnation

• Transparency builds long-term trust, especially in downturns

A Word of Caution for Founders and VCs

Founders: Don’t bluff your way into a corner. If you raise on fake metrics, you’ll be expected to live up to them and that pressure can break good companies.

VCs: Don’t outsource your conviction to other investors. Pattern matching has its place, but original thinking is rare and rewarded.

The Bluff Game Isn’t Going Away… But Awareness Is Power

Venture capital is high risk, high reward and high illusion.

Understanding the psychology behind pitching and incentives behind investing gives you an edge. Bluffing is part of the terrain but knowing when to challenge the narrative (yours or theirs) is what separates good from great.

Coming Next: Part 3  -  Where the Money Actually Goes?

In the next part of The World of Venture Capital, we’ll explore:

• How VC funds are structured?

• Why fund math (not startup success) often drives decision-making?

• Why some VCs push for growth even when it’s not sustainable?

• And what happens when LP pressure overtakes founder's vision?

Because in VC, the money doesn’t just flow to startups, it flows through a machine of its own.

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Thanks for reading my thoughts and as always, rooting for you from afar.