How VCs can reject founders and have them still like you

How VCs can reject founders and have them still like you

Tl;dr: Guide for VC investors to write rejection emails to startup founders and leave a positive impression at scale, whilst not spending too much time. I provide an example of a rejection email for you to use as a base and adjust to fit your personality.

This is the second blog in a short 4 part series about how VCs can reject founders in a humane way that is both helpful to founders and efficient to venture capital investors:

  1. Why founders hate VC rejection emails
  2. How VCs can reject founders and have them still like you
  3. How VCs can reject founders efficiently with an automation
  4. Template rejection letters for founders to VCs

We went through why founders hate you rejecting them in a lot of detail.

In this blog, we are going to go through how to give a positive impression to founders and how you can compose a template email to respond to founders at scale and imbue a positive impression. I’m going to skip the intro bla and get into it.

Goals of rejecting founders positively

You’re going to say lots of NO to founders. It’s not that hard to say no and have founders not think you are an arrogant asshole.

And let’s face it, the vast majority of founders talk shite about VCs…

So why do you want to say no and leave a positive impression?

Word of mouth

You know startup and investing land is small.

People talk.

I don’t just mean founders. You are part of a large ecosystem that includes other investors (you want to co-invest with), corporates (you want to do the value add thing with), staff (you want to shift to portcos), press (You want to cover everything, including your firm) etc.

Let’s focus on two.

Founders

You know what the research says about people with bad things to say. They actively go out of their way to share their negative views.

You can’t buy that (negative) impassioned press.

Understand that whilst you might think the founder that pitched you is a moron…

  • They might be in an accelerator cohort (With 100 startups)
  • Their friends are in startup and ask for investor leads
  • They might have influential friends who are not morons
  • They might not actually be a moron in the future

Investors

Unless you have $2bn under management, you might not care about the investor ecosystem.

Even then, you know that’s bullshite. You’re always looking to lead or get an allocation in a hot deal. Being known as a dick isn’t something you want to get in the way.

VC land is small. At any point in time, there is a founder and an investor in a Pete’s talking shop. You might be mentioned.

You don’t want founders talking shite about you to anyone. Especially in the Valley, some people take everything the wrong way, and explaining yourself isn’t fun (and frankly, exhausting!).

Build your brand

Jeff Bezos is widely quoted as saying, “Your brand is what other people say about you when you’re not in the room.”

It’s really not that hard to get a neutral NPS. It’s also not hard to get a promoter one either. You just have to be a nice(ish) person and the bar for founders isn’t that high.

You need to avoid the detractor numbers at all costs.

If you have committed to the VC game you should know you don’t get rich on the first fund, and it takes years to make the big money.

It takes a really long time to build a brand and to get people talking about you at all. So if you are going to put in the years, then why not be the VC that founders at least have a neutral view on you (so they don’t avoid you)?

Take it from me, blogging and all the social media posting is a hella lot of work. Social in particular is a lot of noise and wasted effort till you get to scale.

It’s so much easier to do it ground up through each interaction with a founder. You have to do it anyway!

Let’s say you interact with 1000 founders a year, that’s a fricking 1000 people who can be doing marketing for you at grass roots!

Get the best ones to return when fundable

The deals you are likely to make money on are the really top founders. The problem is if you do early-stage deals, it can be really hard to know who they are.

When I was investing in Asia, I’ll be open and say (as a white dude, though I grew up in Asia) I consciously became aware I didn’t know enough to know what a good ‘Asian’ founder looked like without obvious signals, particularly given our ecosystem was really new. Looking at Jack Ma spurred on that thought. Sure there were the usual rich HBS grads that went home, but that only gets you so far. I still don’t know.

Most VCs can’t get the really famous ones. The investors that backed them, and the deep-pocket famous ones (Who aren’t reading this blog) are getting those as lead.

But, that doesn’t mean you can’t participate in a founder who had a good exit or capitalize on ’emerging’ founders when they grow up for the next round post-pivot, or when they shut down that garbage startup and stumble onto something that just happens to be rocking out with their cock out.

When that happens you want them coming back to the investors that treated them as humans to get first dibs.

I had a founder email for his future round something like: “I’m reaching out as you gave me an actual reason for passing and not the bullshit investor normally spout“.

That was like a year or something later that I passed on him. I didn’t invest, but I remember him writing that.

Leverage when they’re hot and you need to chase them for allocation

You hear on the grapevine when there’s a hot startup raising. It can get hard to get in, but you need to try.

When you reach out, they have the leverage now. Hopefully, they want you in the deal and bring you in for allocation… It’s harder when you didn’t plan for that possibility 2 years prior.

What a positive impression is for founders

Ok, so you see the benefit of founders having a positive impression of you regardless of whether you would invest in them.

What is positive?

Well, it’s not really hard. It’s all about just being sympathetic and not thinking you as a VC is special.

Timely

It’s always good to respond to emails promptly. Funny thing is, too fast isn’t necessarily good. It could give the impression you didn’t spend the time that founders think they’re entitled to.

The absolute minimum is an hour. An hour is something a founder can live with if they think you started the moment you received it.

A day is fine, beyond that you lose on the time factor.

My friend got funded by Cuban as he loves people who respond fast to emails.

Responding to a reasonable timeline makes people feel like attention was paid to them and they matter. Responding in weeks negates it all.

Friendly

Just be normal.

I get you’re a VC and feel all sorts of special, but you are just a “girl standing in front of a boy, asking him to love her” at the end of the day.

I’ve made friends with VCs and how we interact as friends are so much different than when it was ‘professional’. I really don’t think it should be.

I mean fine, as a banker or a lawyer with corporate clients, having a stick up your ass increases your hourly rate, but you’re dealing with startups?

Your audience is so different.

You can speak colloquially and you can be reasonably direct.

I would say that you should err a little on professional though. Founders put VCs on a pedestal and will take things the wrong way and can be emotional due to stress.

I get away with a lot of shit I say because it matches my personality, but I don’t always. There are snowflakes. I had an argument with a partner about how I communicated (honestly) with founders once. We just had very different perspectives.

Insightful/experienced

As a good VC, you have to be smart (and lucky). It’s Kool and the Gang to be nerdy. Founders crave that.

In any interaction, the questions you ask and the unsolicited advice needs to be smart.

Communicate that whenever you can without being condescending, especially when you didn’t really read the deck…

Personal

Founders really want to feel like you are specifically talking to them. That what you are saying is bespoke to them.

It goes a long way. Problem is that can be time-consuming at scale.

There are ways of writing which seem to be for anyone. I mean, you have read Horoscopes, right?

Try to write in a way that speaks to founders- your audience.

Courteous

Don’t shit on founders.

Be a little professional, but not at the point you are generic and corporate.

Use basic salutations and closings as a matter of form.

A little goes a long way.

Mode of rejection

This is simple.

You’re going to reject founders via email. You don’t have to do anything fancy at all.

There is no scalable avenue for innovation here.

You are only going to do calls and meetings with founders you actually might invest in.

Furthermore, if you want to mind-rape a founder that is an expert in anindustry but not fundable (for whatever reason), just say so.

Jim- It’s a pass from me presently, but I’m really interested to understand this field of quantum computing you’re working on. I’d love to grab a coffee if you have time?

Components of a positive rejection

Let’s work through the constituent parts of what I think forms a positive rejection letter. Then I’ll show you one example.

Use their name / don’t write dear

Dale Carnegie wrote “Remember that a person’s name is to that person, the sweetest and most important sound in any language”.

Always use their name.

And super important… spell it right.

To make sure you do this right, I recommend you do this to respond both faster and with accuracy.

Go to the end of the email when they sign off, copy their first name and copy/ paste value (CTRL SHIFT V) the name. It’s then in native format and will be their preferred name.

I can always tell template BS when text formats are different. This is small but important. I always do this as I messed up in the past. There are always Indian/Arab names you aren’t used to that you will mess up. Regardless, there’s no excuse to spell them wrong.

On this point… sometimes I will use the colloquial version of a name. Say their name is Abhishek, I might respond with Abhi. It’s a very personal decision. I like to be overly personable. Safer is to use not what is in the email, but what the founder chooses to use in their signature. If you don’t take risks like me, just use what they use.

Thank them for reaching out to you and your firm

Isn’t it cool that a founder not only wants money from your firm but YOU specifically?

Even if you are a big deal, stop and smell the roses and realize that’s an achievement.

Raising is a big deal for founders and the fact they sought you out is something to savor.

They want you.

You should be freaking out when founders decide they don’t want you anymore, given you look like a walking checkbook in a grey Patagonia jacket.

Reference their startup

Similar to their name, their startup is their baby. Copy and past value their startup name somewhere to acknowledge it. It’s a simple way to differentiate one email to another.

Show you understand the struggle

It’s so easy to fathom why founders think VCs are out of touch.

Most people (reading twitter), and I mean general audience, believe VCs are ex-bankers, never have done a startup, and are totally out of touch.

I think that’s BS. Most VCs have done startup to varying levels of success. ‘People’ just don’t think it.

Humanizing yourself by casually mentioning you know what it is like could make founders feel you understand the struggle as you stab them with a no.

You aren’t a high faluting investor, ethereally passing judgment upon high, you’re saying no wistfully with the knowledge of what it’s like.

You started from the bottom now you’re here, but you are grounded.

Be clear about the no

Look, raising is a bitch.

It’s a numbers game and many (not all) founders know that.

I would prefer a clear no than a massively conditional maybe with no comprehension of the conditions.

Keeping on top of you (collectively) is a logistical nightmare.

If it’s a no, say it.

You can actually elevate the founders’ opinion of you with a clear but conditional no if you spell it out.

If you are a sheep (most) and want to see more commits, then why not say it?

You could say “Jim – Right now, it’s a no from us. Honestly, I’m not an expert in quantum computing and your traction isn’t enough for me to take a leap. I am however happy to consider being a follower for perhaps $300k and take a leap if you were able to secure the round with a lead who knows the space. If you find a lead with the chops, please reach out, otherwise, I don’t have the confidence to commit and I don’t want to distract your process. Best, Mary

That’s actually a great email as a founder. I potentially have $300k to add to my round and I’m going to note it in my fundraise management sheet.

FYI, I made a free template that works for both investors and founders here: Fundraising process manager tool

Use us not me

This is a small point, I may be wrong, but it’s worth considering.

Years ago I read the history of Goldman, Sachs. In it, the author talked about using us not me. That stuck with me.

Unless you are the rare single GP fund, you have partners.

Take it from me, if you say “It’s a no from me”, a founder with a bone is going to spam all the other partners since it is not an us.

Obviously you need to be able to speak for the firm to use us, but that’s a given.

Using us also has a sneaky implication that 1/ possibly more than you reviewed the deal (More attention paid to founders) and 2/ founders shouldn’t spam others.

Use us sparingly though. Only regarding a decision.

For everywhere else use me/I to make the interaction personal.

Give a specific area of concern for why you are passing

Whatever happens, good founders are going to want to defend themselves. They want another chance to convince you.

Whilst giving a specific reason opens up the inherent need of a founder to respond for a call to change your mind, if you also add a milestone (achievable or not) you can counter that for all but the morons and the committed.

Giving a specific reason makes founders feel there is a trigger point, which could be one of many, but you are probably sharing one.

Without a specific, in their head, they assume you didn’t pay enough attention and you missed salient points and “they’re so much better in person“.

Something specific kills the notion you didn’t read their deck.

Give a reason that enables the founder to save face

This is a more of a not to do list, as opposed to a point of order.

The main reasons VCs pass are:

  • Team suck (Most)
  • Market is too small (As VC can imagine growing if new. Uber and particularly Airbnb is a real example)
  • Problem isn’t clear enough (Dropbox was a good example)
  • Not clear they can really be the breakout (which covers pretty much everything)

Some, if not all, will annoy founders.

The real reason VCs pass on most deals is ultimately the team. Read: The real reason founders are not funded VCs don’t say in a pitch process

That is the one thing a VC can never say. So for most deals, you are going to have to pick another common excuse to help the founder save face.

Acceptable pass reasons:

  • Market size: Fred at USV said on Airbnb- “They have an interesting business. I’m just not sure how big it’s going to be – FW” Read here: Private Airbnb email on how a VC missed out on a unicorn
  • Traction: This is an easy win. You can easily setup founders to prove you wrong
  • Don’t get the problem worth solving: Mainly for new industries, you don’t understand and you need proof through traction to show it.
  • Tech looking for a problem: It’s an opinion and you cred then for tech chops

It can never be about the team.

Caveat the concern and be humble

Founders are always going to argue with you, so accept you are probably wrong and often are.

By saying you could be wrong you acknowledge you are fallible and mitigate the notion the startup is not fundable at all (though it might be. Only say that if you are being paid… or refer them to be and I’ll tell them. That’s not your job as an investor).

The Key is not to assert you are a sheep, have no conviction, and don’t have the balls to take a risk.

If you say you just don’t know but there are people who do, you open up to benefitting from it.

Founders don’t have an issue with an investor willing to place a bet but don’t know enough yet. It’s something they can work on.

Be reasonably short and avoid the impression of being a template

Everyone hates long emails.

One one side founders will love the notion that an investor took the time to send them a long email, but on the other, it can seem weird or imply it is a template. You want to avoid all.

You want your response just long enough to feel like you care, but not so long that you assert you are a weirdo who doesn’t get pitched.

State what you’d like to see in terms of traction for them to return in future

Other than me (feck do I know about everyone), very few investors really say no when they mean it. Everyone implies maybe to leave the door open.

What’s wrong with throwing out the fundable number and seeing if founders achieve it? You’re being honest, the founder has real clarity on the VC game, so if they deliver it is all gravy!

SaaS at S-A is about $1.5m ARR to be worth looking at. Ignore the other metrics. Why not just say we are interested in $1.5m ARR startups?

If you say come back in 3 months, they might achieve nothing. They might also come back with $5m ARR (well…) and be too rich for your blood then?

Throw founders a real number based number you would love and they objectively can achieve with no subjectivity.

Close with your first name or initials

Duh.

I don’t like corporate signatures. They’re for lawyers- you want them to be detail orientated robots.

For me I use:

  • Alexander
  • Alex
  • ADJ

I don’t personally care.

I don’t write Alexander D. Jarvis, ESQ. That’s lame, right? (BTW, research proved that people view people with a middle name as being more intelligent, but I digress).

I really believe you want a mentality of making friends with everyone and acting like they are already.

Using your casual name is an easy way to be personable.

Keys to doing this efficiently

I’m going to get into automations in the next blog. I don’t quite know what I’ll write in it yet. Likely I will be technical. Why don’t I deal with the keys to efficiently automating responses here now then.

Try to keep templates very similar

You need to know your templates.

You only want so many templates to deal with Pareto (Read: Think better: Pareto principle or 80/20 rule for startups) situations and make so many that you:

  • Only have to remember so many shortcuts
  • Deal with most rejection types
  • Not have to read your templates and worry you messed something up!

When you write your own template, make one main one. You only make alt versions of the template where absolutely needed so you know it.

If you have too many you will feel the need to read them. You need to trust that you make a few edits, press send it, and you won’t worry you messed up.

Have few custom fields

The key to automating responses is that they are fast to do.

The fewer fields to edit the better.

The ideal is none, but that’s not possible.

Take it from me, you will get jaded/bored eventually, so less personalization but consistency holds the test of time.

In the example rejection email, I have highlighted the custom fields.

Make sure you spell the founder name and startup correctly

I explained this already. Don’t mess thsi up.

Hit respond and keep the subject the same

There is no need to change the subject of the email the founder wrote. They picked it and it will thread in Outlook.

You want to just press CTRL R and, hit the text automation, edit and send.

No fancy shite.

Example rejection email

I just knocked up this example. It might be a little long, but I think it is solid and I’ve incorporated all the factors I think should be communicated.

Example to play with

[Jim],

Thanks for reaching out to Blue Shirt Capital and specifically thinking of me.

I’ve been a founder myself, so I understand the pain of raising!

I had a look at the deck for [STARTUP]. For the purposes of managing your process, this is a no from us.

We get thousands of pitches a year and can only invest in a few. This means we have to say no to almost everyone.

I appreciate you would like specific feedback. As a full-time investor who looks at startups all day, it honestly comes down to a gut feeling.

[Template reason- traction] [The area of concern for me is your metrics. Specifically, churn.]

I’m often wrong. I’d be delighted for you to show me I am when you raise your next round.

Our focus is series-A SaaS. When you are [at $1.5m ARR] please reach out and I would be happy to review again.

Best of luck with your raise,

Alexander

Example with comments

Let’s quickly break down the email. I’m sure you can take my draft and improve it, but here is my thinking.

[Jim],

  • This is the first field you are going to customize. It’s their name. Obvious

Thanks for reaching out to Blue Shirt Capital and specifically thinking of me.

  • We mention your firm name and that the founder is reaching out to you specifically

I’ve been a founder myself, so I understand the pain of raising!

  • This is an attempt at empathizing with what the founder likely feels

I had a look at the deck for [STARTUP]. For the purposes of managing your process, this is a no from us.

  • This is the second time you have a customization field with the startup name
  • We give a clear no
  • We say it is from ‘us’, the firm, so it doesn’t leave open the founder should hit up another person at the firm
  • I could have capitalized the NO, but you shouldn’t to make more clear. Founders will agonize over the email so they will see it. CAPS feels like SHOUTING. Never do it. It’s not professional

We get thousands of pitches a year and can only invest in a few. This means we have to say no to almost everyone.

  • We are trying to not discourage the founder with this

I appreciate you would like specific feedback. As a full-time investor who looks at startups all day, it honestly comes down to a gut feeling.

  • Founders kind of know that investors don’t always really know why they say yes and no, so I’m calling BS on investors and being honest
  • No one has an issue with honesty when it comes from a good place. I don’t think I phrased this right, but you get the idea
[Template reason- traction] [The area of concern for me is your metrics. Specifically, churn.]
  • This is the main area of customization and thought you are going to have to provide founders. You are almost always going to pass for only a few reasons, so you can opt to make a template, or write free text to each founder. That’s a call for you.
  • The upside of free text is it is more personable
  • The downside is it requires more thinking

I’m often wrong. I’d be delighted for you to show me I am when you raise your next round.

  • I try to assert you are humble and admit you may well be wrong. This again does not dishearten the founder as they run the process
  • You do the ‘VC thing’ and leave the door open for them to return

Our focus is series-A SaaS. When you are [at $1.5m ARR] please reach out and I would be happy to review again.

  • Now we quantify when they should follow up. There is not a date, it’s a milestone. This will vary between the sectors you focus on
  • You are clearly set out what your expectations are in number terms which are hard to argue with

Best of luck with your raise,

  • Standard pleasantry. Use what suits you

Alexander

  • Non-formal sign off

Conclusion

Let me be honest. I don’t know anything about this topic that you don’t know already or can’t figure out. I’m just doing some thinking for you and setting out things you can think about critically for you to decide what works for you if you decide you want to take a humane approach to rejection letters to founders.

In the next session, I’m going to teach you about how to automate responses so you can plow through your inbound at scale.

Any thoughts? Reach out in the comments and let’s debate!

Keep hustlin’.

Get in the game

Free tools and resources like this shipped to you as they happen.

We won't send you spam. Unsubscribe at any time. Powered by ConvertKit

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.