Accepting Investor Rejection
Hearing "no" is never easy, but don't waste your time trying to convince investors their perspective is wrong.
đ Thought Bubble: Move On from Rejection
âNo is the second best answerâ is a saying that gets thrown around a lot in sales, but it also holds true for fundraising (VC Minute episode 45). At SpringTime, we know a direct no is better than ghosting and can help founders prioritize and focus on other investors that might be a better fit.
When we pass on companies, we always highlight a couple of key reasons why we didnât feel the investment was right for us. Our hope in doing this is that founders have a good sense of the areas of the business we were most concerned about and what they may need to convey or be prepared to answer with other investors. Sometimes, though, we see founders refute these emails in hopes of swaying our decision.
In episode 122, Rachel McCrickard, CEO of Motivo, shares that in her fundraising experience, she has never been able to convince an investor theyâre wrong. She highlights a time when she sent an in-depth response to an investor countering the bulk of the points they made. Despite Rachelâs energy and effort, it did nothing to sway the investor.
It is not surprising that Rachelâs response didnât change the investorâs mind. The reality for early-stage investors is that theyâre forced to make decisions on limited data. So much information at a companyâs earliest stages is imperfect and can be interpreted in different ways.Â
To fill in the gaps, investors often talk to subject matter experts in their network to validate the problem and assess whether the proposed solution has the potential to address it. Additionally, investors leverage lessons from previous investments, a.k.a., âpattern recognitionâ, to identify key risks. Neither of these are perfect, and while each can be problematic if biases arenât checked, theyâre critical tools for helping investors triage deal flow.Â
Once an investor passes, theyâve usually gone through both of these exercises and formed a strong opinion. In order for a founder to sway them, the founder must overcome both the investorâs and trusted subject matter expertsâ experiences, which is virtually impossible. This is why, although quite tempting, sending an email trying to explain to an investor why theyâre wrong is pointless.
Every now and again, founders also follow up pass emails with snarky notes. Please donât be that founder. It does nothing but validate to the investor that they made a good decision by not investing.Â
Receiving a no is never easy. It stings, and no matter how much people say it isnât personal, it can be hard not to take it as such. As a founder seeking to raise capital, though, no is the norm. Investors simply see too many companies to invest in every one. Accept that rejection is part of the fundraising process, send a follow-up note thanking the investor for the time they spent getting to know your business, and move on to focusing on investors that are a better fit for your business.Â
đ» Pitching VCs in this Bear Market
Kelly Lyons published a Medium article, âHow to pitch early-stage VCs in todayâs bear marketâ. In it, the author provides advice for early-stage founders on how to tweak their company pitch to appeal to investors in the current climate. Two of the best points Kelly makes are moving your traction slides to earlier in your pitch deck and creating a âWhy Nowâ slide. Donât make investors flip all the way to the end of your deck to know if youâre generating revenueâmove that figure to the front if you have it. Additionally, donât assume investors know the regulation nuances or shifting market demands to identify why now is the best time to invest in a business like yours. Spell it out! One word of caution on this, though, your âwhy nowâ reasons need to be very specific and compelling.
đ§ Emailing Investors
Sometimes, what is obvious can get lost in the flurry of day-to-day startup activity. A.T. Gambel at Atlanta Ventures wrote âResponding to Emails with Investorsâ, and itâs a good reminder of basic email etiquette that can increase your engagement with potential investors. His points about responding and answering the question are all too real. I am always surprised by the number of people who take the effort to send an email but never follow up with a deck (side note: see episode 30, âJust Send the Deckâ.) or answer a few clarifying questions.
đ State of Venture Q2 2023
CB Insights released State of Venture Q2â23: Midyear Review & Emerging Trends. In it they highlight the latest data on venture capital funding. While Q2âs funding amount, $60.5B, is the lowest it's been in three years, the number of newly minted unicorns jumped 20%. Letâs hope that, coupled with an increase in public market debuts, might be signaling a light at the end of the tunnel for the later-stage market.
đŽ Decompression Zone
Iâve always admired people who can naturally interject humor into professional settings, which is why when someone recommended Humor, Seriously, I was excited to dive in. Iâm only a quarter of the way through, but I love the tee up at the beginning of the book that emphasizes human connection as a critical factor to problem solving.
đ Have a great weekend!