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There’s no agreed-upon statistic for how often it happens, but an inevitable part of trying to raise VC funding is getting rejected. For every lead investor and follow-on partner who’s helping to flesh out your round, you probably with met with ten investors who passed on the opportunity after various levels of diligence. Should you respond if they email you eight months after your closed asking for an update? Should you go back to those investors when you’re raising your next round?
There are five key questions I suggest you ask before making a decision.
1. How long has it been?
The longer it’s been, the more likely the company will engage if you reach out again. Unless something dramatic has changed over the past month, they’re unlikely to give you a different answer. If a VC passed on your seed round, and 12 months later you’re raising a series A, your odds of a yes are much higher.
Who did the passing?
Especially as VC firms get larger and have more investment team members, each person on the team is likely to have a slightly different sector and/or stage focus. If you’ve met with someone at the firm who invests in a fundamentally different sector than yours, it’s well-worth speaking with someone at the firm whose focus aligns better with your company. This can be tough to navigate, and it’s important to make sure you’re not discounting the work the original investor might have done to learn about your space. Ideally, you’ve asked early in the initial conversation how much experience that investor has in your industry, and refrained from making a hard ask if one of their investment partners is better suited to evaluate your startup.
Don’t approach multiple members of the same firm within the same fundraising cycle. VCs update the rest of their firm on the companies they’ve seen and why they chose to pass (at a minimum through a CRM, but more likely through a weekly all-hands meeting). Investors have a sense of who at their firm might find an opportunity interesting, and will share accordingly during their initial evaluation process.
3) Are you currently a stage/sector fit?
If a VC previously passed because your startup fell outside of their investment thesis, check if their investment thesis has changed at all. Some ICT investors won’t invest in companies that require FDA approval, but are increasingly spending time looking at opportunities in digital health. As the firm learns more about the space, their comfort level may change. If your B2C company failed to raise from a firm that indicated they focused primarily on B2B businesses, a new investment team member with a background in consumer might change their investment thesis.
Be conscious of stage as you’re re-pitching a firm. If they’re a seed-only fund, there’s no point resuming conversations once you’re raising your series A.
4) How did they treat you when they passed?
Don’t feel required to engage if an investor who has passed on the opportunity previously with a generic reason — such as “it’s too early” without meaningful discussion about risks or a genuine stage mismatch between you and the phone — or didn’t show any signals of interest or value-add during the process reaches out again. If you found the previous engagement was high quality and they meet the above criteria, they’re probably serious about evaluating this round! What qualifies as a signal of interest or value-add? You were late-stage in the diligence process, they referred you to another helpful VC, they made customer introductions, or they provided thoughtful feedback on your business.
5) What’s changed since you last spoke?
The most important factor within your control is what you’ve managed to de-risk in your business. VCs think through the lens of risk. As I mentioned in a previous post, investors evaluate your progress of de-risking the business against multiple business areas: founding team, product, technical, ability to launch, market adoption, revenue growth, cost of sales, customer upsells, virality and engagement, competitive displacement, fundraising risk, and many more.
In an ideal fundraising process, you’re crafting your narrative around the specific risk(s) that you’ve de-risked since your prior funding round, and the specific risk(s) that you want to use this new capital to execute against. The best VCs will tell you when they’re passing what risk they’re concerned about, and why they don’t believe you’ll be able to execute against it. This might be conveyed through a statement like “call me when you hit 100K WAU” or “let me know when you’re at $1.5M ARR”, or a more nuanced explanation of why they don’t believe you’ve hit a repeatable sales model yet.
When you get this feedback, remember it and use it when you reach out to the VC who previously passed. They’ll remember why they passed, and respect that you internalized their feedback and proved them wrong.
If you have a good understanding of why a VC firm passed on your company and there has been a credible change in the nature of your business that addresses the reason for passing, by all means, you should be reaching out again to a VC that has passed previously.
Other factors that may help your case include if the VC has raised a new fund (maybe you didn’t fit their former thesis or maybe their fund was near full) or if they have brought on a new associate, principal, or partner you can pitch.
As has been well pointed out, two significant factors that will help you get a re-pitch opportunity is the length of time since your last communication (longer is better), and who you are reaching out to (different is often better).
It almost goes without saying, the very best way to be seriously considered by a firm that has passed previously is to exceed their expectations as it pertains to executing against your plan. Nothing changes a VC faster from a no to a yes than a wow!
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