If You Think Getting VCs to Say "Yes" Is Hard, Try Getting Them to Say This...

When you’re an entrepreneur in the middle of trying to raise a round of capital, you probably think the hardest thing you’ll have to do is get venture capitalists to say “yes.” But it’s not. Sure, it’s the most valuable thing. But it’s not the hardest. The hardest thing to do when fundraising is get VCs to say “no.” It’s also almost as valuable.

That’s right — as difficult and valuable as it is to get VCs to say “yes,” getting VCs to say “no” is often much more difficult, but great entrepreneurs know how to get a “no.”

I’m pointing this out because it’s a subtle but important issue that creates lots of problems for inexperienced fundraisers. Heck, I know it caused me lots of problems when I first started trying to raise capital for my startups. I spent so much time obsessing about what I needed to do to get VCs saying “yes” that I didn’t consider the value of a “no.” As a result, I wasted lots of time and effort chasing VCs I had no business chasing.

To help you avoid the same problem, let’s take a moment to understand why getting VCs to say “no” is both difficult and valuable.

Understanding an investor’s perspective

If you’re fundraising for your startup, you’re presumably doing so because you personally believe it’s a worthwhile venture, and you think additional capital is going to give you the best chance of making that startup successful.

While there’s nothing wrong with fundraising to support your own goals and ambitions, you need to be aware of how it will impact the way you interpret responses from the VCs you’re pitching. To understand what I mean, let’s consider how meetings with VCs usually end. As we all know, VC meetings rarely end with them writing checks. Instead, once you’ve finished pitching, VCs will usually conclude meetings by saying something along the lines of:

“You’re doing some really interesting work here. I’d love for you to keep me in the loop on your progress.”

Most entrepreneurs — especially ones without much fundraising experience — interpret that as a positive response. And why wouldn’t they? The phrase seems to confirm a startup is on the right track and investors are interested. As a result, entrepreneurs who hear phrases like that tend to think, “I’ve totally got this investor on the hook. I’m going to keep showing our amazing progress for the next few weeks, and I’ll have an investment wrapped up in the next few months.”

Unfortunately, despite the seeming enthusiasm of an investor who wants to be kept updated on a startup’s progress, the response is actually just a way of avoiding saying “no.”

To understand why, take a moment to consider what VCs are trying to accomplish. Venture capitalists don’t care whether or not any one specific startup gets funded. Mind you, I don’t mean to suggest VCs aren’t caring people. I just mean a VC’s job isn’t to care about any one specific startup in the same way it’s the job of entrepreneurs. Instead, VCs have a different job. It’s a job that requires turning some amount of money into significantly more money by investing in risky businesses. In that context, re-read my example phrase:

“You’re doing some really interesting work here. I’d love for you to keep me in the loop on your progress.”

What else might a VC say at the end of a meeting?

The two outcomes of fundraising meetings

Fundamentally, a fundraising meeting can only end in one of two ways. Here are the possible scenarios:

Scenario #1: The VC is genuinely interested

If a VC genuinely thinks a startup is interesting, I suppose it’s possible the person would say, “this is really interesting” and ask to be kept updated. But it’s not likely. Remember, VCs are trying to do a difficult job, and the best way to do that job isn’t to passively wait for founders to offer deal terms. Instead, when VCs see deals they like, they actively pursue them.

In other words, when investors are interested in a startup, they’re not going to let the entrepreneur walk out of a meeting without expressing some clear sign of interest. That sign of interest won’t be a check. It might be a term sheet, but that’s unlikely, too. Instead, the most likely expression of interest is to schedule another meeting.?When investors are pushing for another meeting, that’s how you know they’re interested.

Scenario #2: The VC isn’t actually interested

Imagine you’re a venture capitalist sitting in your fifth pitch meeting of the day, 500th of the year, and maybe 5000th of your career. By this point, you’re probably pretty good at determining whether or not you’ll be interested in a startup within the first 10 minutes of a pitch. At the very least, you’ll know whether or not the startup is going into the “I should learn more” bucket or the “definitely not” bucket.

If you already know you’re not interested within the first few minutes of a pitch, you have to find a way of managing the remainder of the time. Sure, you could end the meeting as soon as you know you’re not interested by being honest and saying, “I’m not interested,” but what value would that get you?

For example, let’s imagine, within 10 minutes of meeting a founder, you mistakenly pass on a company only to watch it become the fastest growing startup in history six months later. That would stink, right? Wouldn’t it have been smarter for you to be positive with the founder during your meeting and ask that founder to keep you updated on the company’s progress just in case something unexpected happens? After all, being kept updated about a company costs you, the VC, almost nothing. But missing a great deal costs you millions of dollars.

Conversely, imagine you’re right about the company — which you probably are — and it doesn’t become anything worth investing in. Telling the founder “I’m not interested” still isn’t in your best interest because most founders are going to respond by asking: “Why?”

Great… now the founder wants you to quickly and succinctly summarize all the things wrong with the startup you just heard about. That’s going to be difficult, and, no matter what you say, the founder isn’t going to fully understand or appreciate your feedback.

In other words, being honest doesn’t produce any valuable results. It just creates potential problems. So instead of telling the founder you’re not interested and either missing out on a good deal or having to explain why, you simply say:

“You’re doing some really interesting work here. I’d love for you to keep me in the loop on your progress.”

From the VC’s perspective, it’s a perfect way to end pitch meetings, right? Founders feel good about themselves while VCs keep updated about companies without having to do any extra work.

Unfortunately, it’s not nearly as perfect for founders. In order for founders to “keep in touch,” they have to do all the work, and that work takes time and effort, two things busy startup founders already don’t have enough of. That’s why founders should always try to get a clear “no.” Sure, the rejection hurts in the moment, but it saves lots of time and effort because founders who get told “no” can quickly focus on other things.

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Aaron Dinin teaches entrepreneurship at Duke University. A version of this article originally appeared on?Medium, where he frequently posts about startups, sales, and marketing. For more from Aaron, you can also follow him on?Twitter?or subscribe to?Web Masters,?his podcast exploring digital entrepreneurship.