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Even the most successful entrepreneurs are well-versed in hearing no. VCs hear hundreds (some claim thousands) of pitches in a year, while they tend to make a few investments each year per person. That math works out to a lot of no’s.
At BetaKit, Roger Chabra and Katherine Homuth previously discussed why VCs should give you their honest rationale for passing, and what some of the most common reasons for passing are. What we haven’t covered is how your reaction to a VC pass can build or erode your reputation.
You’re constantly executing against risks and it’s never clear how company-defining that risk is.
Some VCs will email you, some will pick up the phone and call. Some VCs will say they’re having trouble getting comfortable with x, y and z, some VCs will say it’s a firm no. Regardless, you’re not going to change their minds in that interaction. Your best response is to recognize the interaction as a pass, clarify anything in their feedback that you don’t understand, and thank them for the time they spent considering your business.
Asking a VC to introduce you to another investor can go either way. If it’s a stage mismatch or an aspect of your business is more competitive to one of their portfolio companies than either of you realized, their disinterest won’t be a strong signal to the new investor prospect. But if they’re passing because of a lack of market conviction, concerns around metrics, or anything else that isn’t unique to that VC, you’re better off getting an intro to a VC through a non-investor source.
If you believe the VC firm is a genuine fit, and the reasons they gave for passing are one that will be addressed over time, building a relationship should be a priority.
You don’t have much to gain by speaking negatively about them after the fact. If they were truly bad actors (think harassment, ridiculing your idea, or telling you that you’ll unquestionably fail), by all means share that information with other founders! But if you think they missed a dynamic unique to your industry or ascribed too much importance to something that you think is trivial, I’d caution you not to spend too much time dwelling on it. You might be right, but it paints you in a bad light and takes away from time better spent building your business.
The joy of startups is that so much is unknown; you’re constantly executing against risks and it’s never clear how company-defining that risk is. But those risks are also a challenge – everyone evaluates them differently based on their prior experiences. If a VC sees a risk differently than you do, your best move is just to focus on proving them wrong by succeeding.
In many ways, investing in startups is a very unique job. But it also has a lot in common with evaluating applicants at a competitive university or hiring for a competitive job posting. There’s a near limitless candidate pool, there’s no finite science behind who succeeds if selected, and you’ll miss out on great candidates. As a startup, try not to take rejections too personally and focus on building deep and authentic relationships.
Christian’s take:
You have three main options after receiving a no from a venture capitalist:
There are pros and cons to all three. The first option is the most time efficient. It’s safe to say that you are not going to hurt investors feelings by not responding to their “no” communique. While there is little downside, there is also no upside in the “no contact” option. You are foregoing trying to build a longer-term relationship. If in doubt about what to do, or just starved for time, stick with this option.
The second option is rarely used, but I’ve seen it from extremely passionate founders. It’s almost always futile to try to change a VC’s mind, but it may make you feel better that you put everything on the table in order to secure a potential investment. That said, it’s important that do not attack the VC! Telling them they are ignorant about your business and missing the point won’t convince them sudenly to invest. I can’t in good conscience recommend the rebuttal to anyone as there is so little upside and so much potential downside of a negative interaction.
If you believe the VC firm is a genuine fit, and the reasons they gave for passing are one that will be addressed over time, building a relationship should be a priority. A gracious reply acknowledging the pass is your best approach to continuing the conversation.