Getting to No

My wife and I live with a toddler and as a result are becoming more familiar with the concept of “NO” – which, incidentally, I can now assure you can contain anywhere between 1 and 5 syllables, depending on the desired effect and emphasis. It got me thinking about a VC pet peeve of mine which is how shitty a lot of VCs are at turning companies down. I’m not talking about the form e-mail that VCs send out to pass on something that they don’t want to take a look at (we all send out these e-mails, don’t we ?!?) – I’m talking about companies that we spend some amount of time with (say at least one meeting, but often several) and decide not to invest in. I’ve experienced this from the other side of the table with some of our portfolio companies, much to my frustration. I probably go too far on this one, but when I turn a company down I typically like to have either a phone conversation or a face-to-face meeting (depending on how much time I’ve spent with them) and outline exactly why I’m turning them down. I don’t break-up on e-mail or by voice-mail. More importantly, I try to give a real reason, not the VC bullshit reason, why I’m not interested (which is to say that I’m never “not comfortable with the market size” or “don’t invest in early stage deals” for example; and certainly never simply avoid phone calls so I don’t have to have the conversation at all). This has led to a few awkward conversations (telling founders that I didn’t think they were the right CEO for a business for example) and plenty of push-back from entrepreneurs who didn’t agree with my analysis of their opportunity/product/way of going after a market. But I’d rather that than honing my bs skills and coming up with new and creative reasons for not investing in something.

If anyone out there has had particularly amusing experiences with getting turned down by a VC I’d love to hear about them.

  • In sales there is a saying: “Buyers are liars.” This includes telling you no. They’ll say maybe forever and ever, but rarely say no unless you make it easy for them to. This is also true with potential investors, who after all are buyers.
    Shameless plug: I wrote about this here on my site at In sales there is a saying: “Buyers are liars.” This includes telling you no. They’ll say maybe forever and ever, but rarely say no unless you make it easy for them to. This is also true with potential investors, who after all are buyers.
    Shameless plug: I wrote about more this on my site at http://www.askderekscruggs.com/slow-turndowns-bad-up-front-contract.html

  • Good post!
    In my experience, there hasn’t been anything remotely amusing about rejection. The VCs just don’t reply to emails.
    If I may say so, the process should work like this;
    1) Every pitch should be met with an automatic rejection. The only reason is “Sorry, we don’t know you. See you later.”
    2) But the rejection should be accompanied with a list of demands the vc wants the entrepreneur to deliver on, so as to warrant further conversation.
    e.g. We reject your proposal (for the reason above) but if you can show x,y,z in the near future, we’re willing to take a second look at your deal.
    The rejection should be an open ended question. Stonewalling people is stupid and the entrepreneur has to have an opportunity to reply to the rejection.

  • Tom

    If you want to be shown deals and have entrepreneurs interested in your firm, one must treat people with respect. This means telling the entrepreneur why you are not investing. (Although Seth, telling the CEO he is not the right guy can be sugarcoated.)
    Besides being the right thing to do it (i) saves time because many entrepreneurs and their brokers will contiue to call, (ii) allows an opportunity for another bite at the apple if a worrisome milestone is met and (iii) can get the word out that althought your firm did not invest, you were a thoughtful investor with some good advice.

  • I’ve had to tell two separate firms that we’re dragging things out that they were passing on us. Really. Multiple meetings, phone calls, lots of email, etc. I as just stating the obvious, but it’s infuriating when VC waste an entrepreneur’s time. Pass, track, or invest, but don’t be ambiguous and weak about it.
    Why do VC do this? In this case, maybe inexperience. And nobody likes to miss out on a good deal, and sometimes it takes another firm or new information to confirm the gut call. The ones who drag (they don’t pass, track, or invest) don’t have the guts to make the call themselves, and don’t have the respect for entrepreneurs to say no, or say “we’re tracking and contact me in 6 months”. These were local funds that came to us, and it would have been great to keep us off the road so we could build the business. No more local funds–we’re shopping for quality. Quality of capital–what a concept.