After the no

Last month I wrote a post that tried to share the venture perspective of turning down a deal (see "Saying ‘no’ can be hear to do").  In that case I was referring to a specific deal that was particularly hard for me to turn down, although in the post I was trying to generalize to the many potential investments that we take a serious look at but don’t end up closing.  While there’s typically less anguish around it, saying "no" to deals is something that occurs with frequency inside any venture firm. The comments to this post got me thinking about the other side of the equation – specifically what should entrepreneurs who have built up a relationship with a VC over the course of a due diligence process do when that process ends in a "no". 

I have to tell you that I’m shocked by the failure rate of companies I’ve engaged with to stay in touch. I’m usually pretty direct when I’ve seen a potential investment that I like, but for one reason or another I’ve turned down the chance to invest.  While the vast majority of the time I’ll simply turn town the chance to invest (and try to give my full reasoning why), sometimes I’ll say something more like "please keep me updated on your progress," or "I’d really like to stay in touch," or "please put me on your ‘friends of xyz company’ mailing list so I can hear what you’re up to".  This isn’t a throw away comment and I don’t do it often – mostly for companies where I’d consider an investment in the future after the company has made more progress or where I had a personal affinity for the entrepreneur and I sincerely want to help them be successful, even if I didn’t feel I could do so as an investor.  I NEVER say this if I’m just searching for a nice thing to say (if you’ve learned nothing from this blog, I hope its that I’m direct in my interactions).  It’s a balancing act, I know – I don’t want to lead anyone one (as Gerald noted to me: how can you say "no" while a) protecting your reputation as an open minded deal maker, b)remaining open to appropriate future considerations, c) being honest concerning the reason or reasons that affect your decision making, d) respecting the cost of opportunity that all parties have bore to participate in the pre-deal exploratory process, and e) remaining empathetic in a healthy way while defending and protecting your interests and positions – not easy, but certainly what we strive for). 

So apologies if my disbelief seems vain, but if 25% of the companies I ask to stay in touch with me actually do, I’d be surprised.  They may feel that either I wasn’t sincere or its a waste of their time to bother with keeping me up to date, but I think that view is extremely shortsighted.  The friction of maintaining a "friends of my company" email list or one of "potential next round investors" or just "people I care to keep informed" is so low that it seems to me crazy not to do so.  The companies in the 25% group that do this well have figured out how to provide regular, informative, short and to the point updates that make me (and the rest of the group they are communicating to) feel that they are getting the inside scoop on the company.  Sometimes they ask for specific help. Sometimes they are just basic updates.  Always, I enjoy hearing what these companies are up to. 

  • Jonathan

    I've never met you, so I can't say exactly how hearing your “no but you'd like to hear your progress” sounds. However, I would be more inclined to give you updates if you gave me specific reasons to communicate further. I don't think this is leading me on if you are sincere. Tell me directly that you may consider an investment if you saw such-and-such, or tell me that you might be able to help me. In other words, tell me that you feel there is value in the time I'm going to devote in keeping you updated.

    While the amount of time is small, small things add up, and if I'm deciding where my opportunities are, I'll spend time if I believe I have something concrete to gain (not just funding, but good feeling, good word-of-mouth, assistance, etc.). So throw us a bone!

    • sethlevine

      fair enough, jonathan. however with extremely low overhead of staying in touch why not? i think every company should have a 'friends of the company' email list so they can keep people up to date on their progress (i've seen many companies use these mass emails very effectively). i'm not necessarily looking for a one on one relationship – just to hear how things are going.

      i'll take your comment to heart and be more specific when i want to see specific progress and may then want to invest or where i'm just curious where the company ends up.

  • Seth,
    In keeping with the spirit of this post, I wanted to let you know that we (trooQ) are making great progress and are planning a free version launch of the product in the coming weeks. Thanks for the time you gave me and the advice you provided. If you would like to hear specifics as to where we are, just let me know.

    Thanks again!

  • People don't follow up for the same reason they suck at email management or updating their company blog. It's just another task they'll get to “someday.” Most people suck at most things, so the skill set known as “follow up with the investor who said 'no'” is probably on the same bell curve as “follow up with the customer who said 'maybe next year.'”

    Not excusing, just trying to give it some context…

    • sethlevine

      true. there's clearly a bias by many people to only deal with that's immediately in front of them in many circumstances, not just the one i describe. i'd have the same reaction in any case – its not hard to do, in this case can be aggregated across a large number of people (i.e., the effort to stay in touch with one person in the way i described is essentially the same as the effort required to stay in touch with many) and the failure to do so reflects a lack of forethought. IMHO

  • Mr. Levine – Following Mr. Kern's lead, I am would like to update you on one of my companies – NorthStar Gloabl, Inc. We are very excited at this point. NorthStar Global, Inc. is entering the patent process for a innovative device we have developed in the tech and storage sector. We have also developed a business solution process that may be patent worthy as well (the attorney is researching this one). I subscribe to your blog and would love to keep you informed of our progress. I will definitely add your email address to our “Friends of the Company” list.

  • Hi Seth,

    When screening potential ventures, what type of criteria do you use? Is there a specific model that you have built into a spreadsheet? A checklist? Or do you operate by gut-feel, reviewing the business plan, then having a “pow-wow?”

    Thanks for the insight,

    Newport Venture Group

  • Dawn

    As someone who got a quick no from Seth about a year ago, I have to report that I HAVE stayed in touch with Seth and he has been VERY helpful to me! I deeply appreciate it. Most VCs would rather spit in your face than continue a dialogue after they know they don't want you. Seth's openness to me has been extremely refreshing and I greatly respect him for it!

    If you kiss Seth's offer off, you're crazy.

    And, Jonathan, I for one think your attitude is self defeating, not to mention disrespectful. “Something concrete to gain”??? Being so calculating with human relationships isn't going to get you anywhere, IMO. We're all human beings first, VC/entrepreneurs second. When somebody treats you as a thing to use, you can sense it immediately. If you come off as cold and calculating as you seem here, they'll cross YOU off THEIR list, and you will no longer have to worry about whether your precious time is being wasted by taking them up on their offer.

    Which reminds me. There have been many VCs who treated me in that “cold and calculating” way with “offers” like: “Ping me when you launch.” Will I? No.

    So I guess whether or not to stay in touch really just depends on if you've made a genuine human connection or not. If you don't feel it, don't offer or don't accept the offer. Otherwise, you'd be stupid not to do both.

    • sethlevine

      thanks for the kind words, dawn. you're right about the importance of a personal relationship/connection. we're all humans and can't help but react as such (as we should). there's context do everything we (meaning humans, not just venture capitalists) do and those that recognize that are certainly ahead of the game.