How to take a “NO” from a VC

Last night John and I had dinner with a rather prolific venture capital partner who was explaining that over the past 12 months he has met with over 300 companies, done deep dives with 30 and offered term sheets to 6. What struck me was the sheer number of ‘Nos’ he has to deliver each week – an average of six per week. What a nightmare that must be.

Over the years I have pitched more than a hundred VCs and less than 50% actually ever say NO or pass on a deal. Generally I have found that experienced VCs tend to give you negative or positive feedback very quickly. VCs like the one above, i.e. experienced VCs, have to move on quickly simply to get through the deal flow. They want to tell you where they stand so either they can stay competitive in the deal or get you to leave them alone so they can move on to the next deal.

On the other hand, inexperienced VCs sometimes have no idea how to communicate your status with their firm. If they haven’t yet done a deal they may be learning the ins and outs of getting a deal through their partnership. There could be a million reasons, but at the end of the day you are in deal limbo – nothing is going to happen. If they decide not to do your deal they may not want to hurt your feelings or end up in an argument with you about why their reasoning for not investing is flawed. Other times an inexperienced VC may have decided not to invest, but doesn’t want to take a position in case you actually find another firm willing to fund your deal – who knows he might want to get in on the action and by not turning you down he keeps his options open.

As an entrepreneur it is important how you take the ‘nos’. When I was younger I would listen intently, formulate the perfect answers and ultimately argue the point with the VC who was simply trying to move on. Experienced VCs who do you the favor of actually turning you down (and, yes it is a huge favor) usually have a number of great reasons not to invest in your deal. Sometimes their partners have another set of great reasons not to invest and so on. Realizing that a prolific VC turns down an average of six companies each week he can’t go through the entire set of reasons for not investing; instead he will usually give you a couple of top level reasons and try to get off the phone as quickly as possible. Trying to argue with him on one or two points is always useless because you don’t have the complete story and he doesn’t have time to take you through all of his/their analysis.

Smart entrepreneurs should listen intently, thank the VC for investing the time to look at the deal and ask if you can keep the door open for rounds or new deals that might occur in the future. Then every quarter or so give him an update on your progress – he may not respond, but he will definitely read your updates.

About Jason Myers

Jason Myers is the editor-in-chief of the Texas Entrepreneur Network and can be reached at jason@txenetworks.com