Tl;dr: Understand why founders hate the way that VCs reject them
This is the first 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:
- Why founders hate VC rejection emails
- How VCs can reject founders and have them still like you
- How VCs can reject founders efficiently with an automation
- Template rejection letters for founders to VCs
Deal flow is a fact of life
As a VC, your job is to invest in startups.
You’re going to get 300-3000 a year.
Some funds have the infrastructure to deal with inflow better, aka as sending to analysts with a “pls review”.
Leads to a philosophical question of whether:
- Partners should champion top of funnel to filter and have analysts/associates dig in
- Juniors filter and partners dig in more
I don’t think there’s a perfect answer. It is something I debated in the past though.
For most funds, there just isn’t enough time to do it all once you factor in:
- Portfolio management
- LP reporting
- Blogging and speaking etc
Deal flow is this never-ending slog. Trust me, I understand what it’s like.
But deals are what you do in your first 2/3 years of the investment period (and ongoing if you can raise another fund). The more deals the better.
Of course, qualified deals help. Read this: How venture capitalists can improve qualified inbound deal flow from startups
You just have to deal with deal flow, but remember our world is small.
VC is a long game and relationship-based
No one knows what is going to be a ‘fund maker’. Some scrappy startup with no traction and what seemed like a terrible market might turn out to be the next big thing in 6 months.
You get 3000 deals and you ignore all of them other than the shiny ones. Well, those 3k-x (x = ignored) are not going to be thinking of you in 6 months time.
You’re killing optionality in the future in exchange for ameliorating the short term pain of reviewing and responding to founders in a way that makes them want to come back to you (if they are still alive, which is typically a fricking good sign).
Understand most founders idolize you and expect something
The moment founders figured out I had money as a new VC, I suddenly went from not talking to that many people at a startup event, to a lot of ‘friends’.
Your opinions start getting taken seriously (lol).
Tech blogs are eager to quote you.
In the eyes of most people, your IQ goes up 50 points the moment your title changes.
No one enjoys getting pitched when talking a piss though. You know what I mean!
The cost of the status bump is that founders expect a piece of you just like people on Twitter do during Corona that billionaires give up every dime they have.
When it comes to emailing you their pitch deck asking for money, they now either expect a yes, or wisdom on how to improve.
There’s a few problems here:
- There’s a lot of founders
- They want details
- Details require consideration
- If you give details, they want more
- You can go from idol to pariah in a second if you don’t meet their exalted expectations
Your options in responding are yes, no and the ‘VC maybe’
There are just 3 ways things can go when a founder pitches a VC.
- ‘VC maybe’
If you’re interested, things are easy for you and the founder. You book a call or a meeting.
When you decide to pass, then this whole game is played again, but even more covertly.
You hate saying it and founders more so.
Naturally, you don’t like saying it. It sucks. So what happens?
Most VCs don’t say no. That saves you a little shame, but it is detrimental to founders trying to plan their round.
I think most VCs get no twisted with ‘not right now’ and ‘not ever’.
I tell founders not ever if they don’t fit a mandate, but I tell ones with potential not now. There is a difference and saying no is not bad.
Many VCs think not saying no gives them optionality. I argue it does the opposite.
The typical VC no is “come back when you have more traction“, and frankly that’s fairly direct as things go.
When you don’t say yes or no, you leave founders in this zone where they cling on to hope. It’s like being in the main souk in Cairo being attached by salespeople, anything other than an unequivocal no is taken as just part of the bargaining process, and you’re going to be chased till you get in your car and leave.
How investors currently reject founders
Here are the ways I think most VCs respond to founders and why:
- No answer: VCs are too busy or just don’t care, as 1/ they’re a big deal (or think it), 2/ they don’t think they should, or, 3/ they’re too shy to say no, so don’t respond. All are generally bad for your brand
- Curt pass: In some ways, these can be worse than not responding. If you’re an asshole, it’s better to keep your mouth shut, rather than removing all doubt. I’ve received some curt passes which make a fair point, and others where I think poorly on the investor. There’s nothing principally wrong with “Our mandate changed, and we’re not doing early anymore. Sorry, Jim“. Whereas, “No thanks” just doesn’t sit right?
- An ambiguous email with some advice: The upside of writing anything beyond a few words is that founders appreciate the effort. They’re not going to send flowers, but so long as the content isn’t arrogant, you’re fine. If your views are lightweight or wrong, then there is the opportunity to get negative brownie points though (and likely a stern correction in response). Templates are a good way to safely do this (which we will cover)
- A detailed email with clear no: This is the best. Dumb ass founders will hate you regardless, but you don’t want them anyway. Smart founders will love you for it, but they’ll keep emailing for more. The big issue is that it is NOT scalable. Trust me, I tried and failed.
Why VCs send sucky rejection letters
Here are my views based on a VC that did things wrong or tried too much, a founder raising, as well as an advisor.
You’ve forgotten what it’s like to be a founder
“You’re born, you take shit. You get out in the world, you take more shit. You climb a little higher, you take less shit. Till one day you’re up in the rarefied atmosphere and you’ve forgotten what shit even looks like.” – Layer Cake
I used this quote in the last blog I wrote: How venture capitalists can improve qualified inbound deal flow from startups
I’m not sure if it was perfectly apt there, but it is now.
As a VC, you have to have empathy with founders to be great. If you’ve never been a founder, you need to learn it (you just need to actually listen when founders talk to you).
When you send an arrogant email to founders, you’ve forgotten what it’s like to be a founder.
Founders can tell and most founders are really fragile.
You don’t have the time
After about 6 months of being a VC, I figured out that there is not the time to respond to all founders as I would like to.
It’s not possible to do bepoke responses.
One good email is never one email. Founders latch onto help and they want more.
I responded by doing a 180 and going cold. That was a bad move.
I then moved to the middle, or rather, I moved to the middle by automating. I learned by messing up fast on both poles.
The process of semi-automating my responses to founders is actually the reason I started my blog. I figured out the common issues all founders had and wrote blogs to make it seem like I was speaking to them.
You don’t know how to say no
If you know what it’s like to be a founder, saying no can be hard. A big yes can change a founder’s stars.
Maybe you’re a smart associate with no real experience but understand the hustle. Saying no every day can get to you.
When it comes to your job (saying no) you equivocate.
Your best intention of not being clear is detrimental to founders.
You can’t articulate why you’re passing
Come on, let’s be real. No one knows what deal is going to be the fund maker. It’s a fact.
They Drove A Clown Car That Fell Into A Gold Mine – Mark Zuckerberg
Jason Calacanis never brags about investing in Uber.
Through this program, Calacanis invested $25K in Travis Kalanick’s company, Uber. The deal is now worth about $100 million. – Wikipedia
You pass on 3000 deals and maybe 2 of them could be huge but you don’t know why and probably couldn’t have. It’s crystal ball shizzle.
At seed, this is for real, in ‘series-x’ land, it’s a bit easier, but it’s a matter of the order of magnitude.
Particularly when you are newer, you don’t really know. If you are older and haven’t seen success, you can’t lie as you do now.
Eh, point is, on the basis of what you presently know, you look at enough deals for long enough and you decide what you think a good deal is. You just don’t know if you are calibrated right or wrong (most are wrong). Regardless, you have a feeling, but you can’t describe it.
When it comes to potentially having to articulate your feelings, well things just got hard. You can’t, you know you can’t, and frankly, you’d rather not try and expose yourself.
Defensive mechanisms kick in and you don’t even try.
You don’t want to say why you are passing
90% of passes fall into an obvious pass (in the eyes of the respective VC). Either you know explicitly why you are passing, or enough things feel wrong that you don’t have any one good reason, but enough ‘eh’ confluence to a solid no.
Only, you so clearly want to say no that you don’t know how to say no because the vast majority of founders would just think you’re a dick if you said what you’re actually thinking.
The reasons you want to 86 founders fall into the conspicuous realm of:
- The team sucks
- Problem seems dumb
- Traction doesn’t nearly meet the ticket/valuation being asked to the point founders seem desperately naive
- Market seems irrelevant and you can’t possibly see an inflection point coming
- The list goes on…
For most of these points, you can’t possibly actually say them, sure I could explain all the above, but let’s just do one… “You and/or your team suck”. You just can’t.
I’ve told CEOs I like them but not their team, and honestly, it’s never worked out. The good ones back their team, the sneaky ones, well. Hm.
You know better
After you put in the time, you mess up, you see what works, you realize emailing honest feedback to founders takes time and often can be a bad idea, and frankly, you get jaded so you stop caring.
This is a funny place where some stop caring so don’t’ bother trying and others care but don’t know what to do.
I certainly was in this place for a while and I think it’s when I most inconsistently presented myself to founders as I wanted, as I knew enough to know, but not enough to know what to do consistently.
Why founders hate your responses
The default as a VC is that founders aren’t going to like whatever you send them unless it’s a yes. But let’s run through why they don’t like you specifically.
Not clear either way
One of the worst ways VCs respond is by not giving a yes, or a no. If it’s a maybe, that maybe is not qualified with neither a timeline nor a milestone.
Not knowing is a huge pain in the ass to a founder. They’re running a numbers game and you are a distraction.
You became a fund manager because you could raise a fund. Most likely you went through up to 3 years of hell in raising your first round. You know how fecked up it is waiting to know if that cornerstone investor is in, or whether investors are coming in the first, or second close.
Don’t feck with founders like LPs did with you. You know what it’s like.
When you aren’t clear, founders hang around like a girl with a land-line in the 90s waiting on a teenager to call. It sucks and it wastes time when a better opportunity could be there if they kept looking.
They’re relying on you
Every investor is just one yes away from the deal being done. Founders just need one yes (Ignore the details) so they can stop raising and get back to execution.
The longer you string them along, the more hope they place on you.
When founders are doing outreach, they’re not attached to you, you’re a statistic. Once you respond, have a meeting, and then more, the more they count on you to get their round done.
You need to kill the hope of founders as early as possible. Unrequainted hope jeopardizes founders’ fundraise.
Come back later? When?
When you have 100+ founders in a pipeline, every investor has some level of cognitive load.
It’s reasonable to assume that the normal pushy founder will send 3 follow-up emails to an investor. If they have 100 in the pipeline, that’s 300 emails. Each email involves fret if they should follow-up. Since everyone is not diligent in managing their round, they also forget where they are in a process, so they end up going through their emails and messages to see where they are.
Each investor might take 10 minutes in checking where an investor is in a process.
So binary, whether an investor is in or out takes time, now add who one should follow up with?
If a VC tells a founder to come back later, when should they? It’s just annoying and another painful thing to have to keep on top of.
How do they respond if someone made an intro?
If founders did what they were told and got intros, they also know that they’re meant to send a follow-up email to the person that made the intro for them.
How the heck are founders meant to manage their network when investors don’t even tell the founders go or no go?
The introducers (who are probably your friends) might feel miffed, and founders who know better feel uncomfortable.
As a VC, you’re perceived as being an expert. With great power comes great responsibility.
They expect you to give feedback
I don’t know why, but founders expect feedback. I run a largely free blog and I can tell you I get asked all sorts of stupid questions and they legitimately expect me to answer them.
As a VC, you need to add some sort of insight or value for founders to let you tick the ‘I got some value’ box. It’s strange I know, but it’s true.
People are entitled feckers. Don’t complain, just got with it.
What to improve on to return in the future?
Better founders don’t see pitches to VCs as a one-off. They assume that they’ve got at least another shot. The question is then “what do you want to see in the future for us to deliver before we come back to you?”
The easiest way to respond to any founder looking for a Series-A in SaaS would simple to be to say “Jim – We only look at series-A prospects at $1.5m or greater. Please reach out when you’re at this stage and I’d be happy to have a look. I wish you the best! Mary”
The easiest way to fob of founders and clear your inbox is to send the shortest possible email possible (e.g. “Pass”). These paint a hugely negative impression on you.
Founders have a baby
Starting a company and having the will to turn that little shite into something other people think is pretty too takes a load of balls. Espcially since most look like the baby in Homeland.
OK, there’s a lot of shite startups, and incapable people working on them, but you have to respect their hustle.
Anything other than yes is going to take a beating to their confidence and when you’re dancing on eggshells, anything can send you over the edge.
You have to be careful when emailing founders.
A 3-word email makes founders feel what they are working on doesn’t matter and by proxy, you’re a dick.
You’re an arrogant dick
If you respond to anyone “Pass”, “Not for me”, or whatever, people just think you’re a dick.
There are so many Instagram accounts on niches, for example, focused on management consultants that make jokes of “pls do”.
In consulting and banking your MDs just don’t give a F, and email the minions “pls do”. The reason it resonates with everyone (including me 10 years later) is we hate it.
Micro short emails scream you’re an asshole and are too important to give a F.
If you’re crazy famous like Elon Musk, then founders are happy they got a response, for everyone else, that shite doesn’t fly.
Next we’re going to deal with: How VCs can reject founders and have them still like you
Disagree or agree? Sound out in the comments and let’s debate.