How VCs Say “No”

For a startup, raising venture capital is daunting.  The numbers are not in your favor.  Learning to recognize “no” gives you a chance to move on quickly to the next opportunity for a great fit.

While there are hundreds of venture capital funds focused on the major industry verticals, each fund will ultimately invest in fewer than 1% of the companies they review. A venture capitalist (VC) has a pipeline that starts with inbound introductions to companies, progresses through an initial meeting, due diligence, deal negotiation, and finally, investment. While the fund will receive hundreds to thousands of leads per year, the down-selecting along the pipeline to investment is dramatic.  Since a VC fund will typically only invest in 10 to 20 companies over the ten-year life of the fund, the VCs must be very selective in choosing which companies to add to their portfolio.  

The reality of these numbers and this process means that a fundraising entrepreneur will be down-selected frequently.  Part of fundraising is trying to find a good match, which means making lots of connections efficiently. The next best thing to a “yes” is a fast “no.” The worst thing is a slow “no” because it wastes your most valuable resource (time). Therefore, learning to recognize “no” gives you the chance to move on to the next opportunity for a great fit.

Courteous VCs

Some VCs are wonderfully courteous.  When they decide the fit is not there, they say so directly. Even better, sometimes they succinctly lay out their concerns so that I know that if we can resolve those concerns, it would be worth another touch.  In my experience, these are the exceptions. And they stay in the top tier of my list in hopes that one day we will find a good match in each other.

Less than Courteous VCs

Other VCs string you along or, worse, go silent. One of my worst experiences with this pattern was one VC group that had multiple phone calls with my team and me. They seemed excited about what we were doing. They then invited us to drive four hours to meet their team in person for two hours. We thought the meeting went well and were excited as we drove the four hours back home. I followed up to get feedback and determine the next steps…repeatedly…over several weeks and multiple modes of communication. They never responded. They could not even give us the courtesy of saying “no,” so we could move on. That group got placed on my personal ‘Do Not Call’ list for their profound lack of professionalism.  

Versions of “No”

In my experience, the most common way VCs say “no” is to simply not respond at all after you have an initial call with them. I find this frustrating. A simple “we don’t see a good fit right now” would suffice and allow me to focus my fundraising attention elsewhere. As a matter of practice, I usually stop following up after three strikes on at least two modes of communication.

Sometimes there is more meat to work with in a “no,” and I always appreciate the time, effort, and professionalism of an investor who shares feedback on what led to their decision.  This is more common when you have advanced further and had several conversations.  Here are some slightly deidentified examples of ways that VCs have said “no” to me over the years: 

• “Really appreciate you taking the time to chat with us last week regarding [your company]. We took our notes to the rest of our IC committee, and, unfortunately, we didn’t get the unanimous decision to move forward in our review. Ultimately, folks on the IC like your product and agreed about the unmet need, but wanted to see data from pilots before considering further. We would definitely like to stay up to date on the progress of [your company], and perhaps we can reconnect after the pilots.”
• “We had a chance to review and are going to pass until you can demonstrate real-world outcomes/ROI, [customer] satisfaction, and show market traction. Please think of us for your [next raise] once you have made headway on these points.”
• “Thanks for the presentation to our group. Our [advisors] like the concept and technology and see this as a potential solution working in [their environment]. However, on the investment side, we think this deal is a bit too early for us, and we … will be a better contributor to the growth of the company when it is past the [next] stage. I think there would be enough interest among our [advisors] to try the product at that stage. This certainly is a technology we want to follow closely. We would like to keep in touch and, if there is an opportunity at a later stage, reassess for investment as well. We wish you good luck with the raise and future efforts.”
• “We concluded you are too early, but we might revisit late this year. This is little bit earlier than our typical investing, but we are interested in the software-based approach.”

Getting a clear “no” allows you to move on forward and keep looking for that elusive and essential “yes,” which will be the subject of my next post.  Stay tuned!