Investors, Here's How To Say No.

How To Say No

While raising our seed round, I heard a lot of “no’s” (fortunately, I also heard several “yesses” :) During that time, I came to learn that certain types of "no" are significantly better than others. 

Investors-- here is how to optimize your startup rejections: 

The "no" with a (genuine) offer to help.

This type of no comes with a consolation prize, usually in the form of an introduction to a potential customer or business partner. For example, when I first started pitching, super angel Ariel Poler turned me down, but he also offered (and delivered) introductions to several incubators that we partnered with. A few quick emails earned him a ton of gratitude and a lifetime of respect from me. In contrast, vague offers (“no, but let me know if I can help in any way”) usually come across as insincere, and fundraising-related offers usually carry negative signaling risk and are to be avoided.

The "no" with words of encouragement

Building a startup is draining, and fundraising in particular can take a tremendous emotional toll. Investors have the luxury of taking a rational lens toward deals, but as entrepreneurs, this is our baby— it’s what we’ve put blood, sweat, tears + our retirement accounts + our parents’ retirement accounts into. We’re emotionally, often irrationally invested in it, and our self-image partially hangs on the company’s outcome. A no with a few kind words can soften the blow and encourage us to carry on.

The short-form "no"

In many cases, this should be your standard retort. Quick, concise, no room for ambiguity or false hope. Some of the better approaches I’ve seen are: “it’s not a fit for me” (thus implying it’s not about you, but them; or, “we’ll sit this one out” (a fairly gentle letdown, though it could have threads of false hope); or, Dharmesh Shah’s standard response: “I’ve got too many balls in the air right now.”

The "no" with feedback

This one can go either way. In most cases, I believe the VC is genuinely trying to be helpful, but it often comes across as mean or snarky, particularly if it’s centered on the product (and even more so if the feedback is coming from a junior person who has never built anything). Feedback with some insightful action items can be good— for example a tip to study another company’s business model, or ideas for marketing experiments are always welcome. If you can identify a deal blocker and a way to overcome it, you’re adding value to the process.  

The "no" with a door partway open

This one is also tricky. I understand your desire to maintain some optionality, and to not totally close the door on an early stage startup you might not fully understand. But the risk with an answer like, “it’s too early for us, but circle back when you’ve got XX traction and ZZ figured out” is that the entrepreneur hears this as gospel, and sets off on a a specific path or business strategy solely to hit your partially-baked funding hoop, only to find it wasn’t actually a firm offer. Trust me, I’ve seen this lead astray more than one founder from his mission.

The "no" by ignore

Investors, heed my advice: avoid this approach at any cost. Sure, it probably feels like you’re saving time and that you're being efficient by not responding to every (legitimate) inbound note or post-pitch follow up email, but trust me— entrepreneurs are keeping score.

Ignoring a founder— especially after you’ve had a real interaction like a pitch or meeting— signals one of a few things: i) you consider yourself far more important than the founder; ii) you value your time more than relationships; iii) you have poor manners.

Also keep in mind that in today’s startup ecosystem, the 20 year-old college kid you blew off could be leading the next Snapchat or Stripe or Airbnb in just a few years. Spend a few minutes each night copying and pasting your standard “no” response or move all of the weekly rejections into a folder and have an assistant type a slightly more custom response. Getting turned down is expected, getting ignored is just rude. 

SUM

Notably, there are just a few minutes’ difference between the very best and the very worst ways to pass on a deal. Entrepreneurs have long memories, and the success of your next deal may be influenced by how you rejected your last.

Call it the karma of startup nation :)

Nathan Beckord, CFA
CEO, Foundersuite.com 
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