Correcting the Most Common Mistake in Venture Capital

As a VC, you say “no” 100 to 1,000 times more frequently than you say “yes.” In fact, it’s what you do more often than anything else. One might therefore assume that VCs would be masters at it, but ask any entrepreneur and they’ll tell you a story of at least one investor who demonstrated a great deal of interest in the meeting, but never got back to them. That’s an infuriating association they won’t soon forget.

However, consistently (and respectfully) communicating a “no” can be a tremendous differentiator from an entrepreneur’s perspective, so much so that many will go out of their way to thank you in some form or fashion. The fact that I received a handwritten thank you note last month for letting an entrepreneur know I wasn’t going to be investing in their business tells you how far we still have to go as an investment community.

So, what are the keys to turning a “no” into a lasting positive impression?

Be Honest

You are passing on the opportunity to invest for a good reason, so it’s important to explain that to the entrepreneur. In the same way you told the entrepreneur why you were interested in them and/or their business in the first place, or at least why you took the meeting, telling them why you don’t want to move forward now will help them understand your reasoning, and perhaps even empathize with your position. Being honest and keeping that line of communication open can make all the difference in how the entrepreneur perceives you, and in turn, talks about you with others.

Be Detailed

Walk the entrepreneur through your logic and decision-making process. It may be as simple as “We don’t invest in pre-revenue companies,” or as complex as a highly informed perspective on their market and competitive landscape, but no matter the reason, walking through your evaluation criteria and how the business aligns against it will be highly informative. Doing so also helps put your decision in the context of differing viewpoints (your’s vs. the entrepreneur’s) on what may be a similar set of facts. This ultimately makes it clear that this is an investment decision about the business rather than a judgement on them as an entrepreneur.

Be Prompt

Be proactive in providing your feedback as soon as you have it, whether that’s at the end of the first meeting, or after doing more work to better understand the opportunity. Time is an entrepreneur’s most valuable resource, and so providing honest, detailed feedback as quickly as possible allows them to focus on investors who have the highest probability of getting to the finish line. A quick “no” is always better than a long “maybe” — or even worse, silence.

Be Helpful (if you can)

Building a business is hard so providing something in return for an entrepreneur’s time to pitch you is a great way to add value when you’re not going to write a check. That said, only offer to help if you are sure you can provide it. Like not getting back to an entrepreneur after a decision not to invest in their business, offering help and then not following through will leave a lasting negative impression.

At the end of the day, you should be as mindful of a prospect’s time as they are of yours. We’re all adults here. Entrepreneurs know that not every VC is going to want to invest in their company the same way VCs know it’s unrealistic to think they’ll always get the last right of refusal. But, the startup ecosystem is a small and tight knit community. We all have a responsibility as investors to treat entrepreneurs with the complete respect they deserve, whether or not we decide to invest in their companies.


Mackey is a Partner at OpenView focusing on enterprise infrastructure and data driven application software.
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