Ask an investor: How do I say no to an Investor?

Welcome to a new BetaKit weekly series designed to help startups and entrepreneurs. Each week, investors Roger Chabra and Katherine Hague tackle the tough questions facing founders today. Have a question you would like answered? Tweet them with the #askaninvestor hashtag, or email them here.


If you’re in the position where you need to turn down a potential investor, the good news is that you’re in great company. The hottest deals are often courted by many investors — too many investors to fit in a single round.

While turning down investment might seem awkward, understand that much like VCs have to turn down a lot of startups, they also receive a lot of rejections from the most popular deals that they pursue. My best advice is that you be upfront and honest in your response.

Much like entrepreneurs don’t want to be dragged along by an investor who knows they aren’t interested in doing a deal, VCs also don’t want to be dragged along by an entrepreneur who knows they don’t want to take an investor’s money. When you know it’s not a fit, politely decline the interest and, ideally, provide a reason.

Possible reasons for not wanting to take an investor’s money include a lack of personality fit or industry expertise, a mismatch of company cultures or misaligned goals, terms in the deal that you aren’t comfortable with, the fact that you aren’t interested in raising at this time, or the fact that you are already oversubscribed.

If you are saying no to an investor because you have an oversubscribed round, you are totally in the driver’s seat.

While it’s good to be upfront about not wanting to take investment, it’s also good to leave the door open where possible. You never know when you might need to go back to an investor down the line. You can leave the door open to future conversations by giving VCs a soft no, rather than a hard no. A hard no would be, “thank you, but we are not interested in your investment.” A soft no would say “thank you for your interest, but we don’t see a fit at this time.”

When you receive a cold email from an investor interested in your company, a great response to decline the interest is usually something along the lines of “thank you for your interest. We’re heads down on project X right now and not looking for investment, but will keep in touch should that change down the line.”

As an entrepreneur raising money, you’ve probably seen VCs use the soft no on you in the past. Rather that saying ‘no’, investors will tell you ‘not now’, encouraging you to send updates and keep in touch. They do this so that they can maintain their relationship with you, in case one day they change their mind and want to invest. Your best bet is to use this same tactic on investors. While this may seem a bit manipulative, it’s really just a smart way to keep the door open for a relationship in the future.

There’s one time you might want to keep an investor that you aren’t interested in taking investment from at the table: when you need their interest as a bargaining chip in a negotiation with another investor. In this scenario, you’d use their interest to make other investors act faster or drive better terms. If you choose to use this technique, be careful. Driving too hard a bargain may scare the investor you actually want away — leaving only the investor that you weren’t actually interested in at the table. Or worse yet, scaring both investors away.


Roger’s Take:

Roger Chabra

Honesty is the best policy here and it’s definitely a good idea to keep the relationship on good terms for future collaboration.

VCs like me know that getting turned down by founders is just part of the business. Unfortunately, saying ‘no’ is a big part of our job, but hearing ‘no’ is also a part of our job. If you are chasing smart entrepreneurs, you are not going to win the right to invest in all situations, no matter who you are or what your track record is. From personal experience, I can tell you that it’s a punch in the gut for sure, but it’s nothing compared to the minefield of rejections that founders go through when they are fundraising.

I would also suggest that you say ‘no’ as quickly as you can for each investor. It will help free up your time to focus on getting to a ‘yes’ from both sides. If you had a terrible first meeting and you couldn’t dream of working with this VC for the next five plus years, trust your gut and communicate to them soon after that you are not moving forward with them. The same way you’d appreciate a quick ‘no’ from them, a professional VC will also appreciate this.

Before you decide to say no to an investor because you are oversubscribed, have a look at one of our previous posts on Ask An Investor: How do I manage an oversubscribed round?. If you are saying no to an investor because you have an oversubscribed round, you are totally in the driver’s seat. If said investor really wants to invest now, perhaps they would be willing to do so on some very favorable terms to you – either as a smaller equity investor in this round with no board seat attached, or in a safe note that converts into your next round of financing.

Got a question for the investors? Email them here.

Katherine Hague

Katherine Hague

Katherine Hague is a serial entrepreneur, angel investor, and the founder of Female Funders, an online destination dedicated to inspiring and educating the next generation of female angels. She is the author of O’Reilly’s upcoming book, “Funded: The Entrepreneur’s Guide toRaising Your First Round”. Prior to leading Female Funders, Katherine founded ShopLocket —acquired in 2014 by PCH. Katherine has been named one of the Women to Watch in Wearables, one of Canada’s Top 100 Most Powerful Women and one of Flare’s Sixty Under 30. She has been quoted in the New York Times on fashion tech and was recently interviewed for the Oprah Winfrey Network. Find Katherine online at katherinehague.com.

  • rocky shepheard

    Why would someone take $100,000 from a VC who they likely have to pay back 5X or 10X over 6 years, if they had access to $100,000 credit line at 25% over 6 years with balloon payments when money allows? It seems they are paying a lot more to the VC even if thy make the minimum payment on the credit line.