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Category: venture capital

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Venture Capital: How to Make the Most out of Rejection Letters

Being declined by venture capitalists occurs much more frequently in the lives of entrepreneurs than agreements on deals. I routinely spend 20-30 minutes, or more, refining just one letter with a decline. Frequently I make drafts, and then review them a couple of hours later in order to get a fresh perspective. Generally speaking, I usually try to treat this as an important part of the process.


What is not so clear to me is the frequent radio silence in response. Did the respective entrepreneur receive the letter? Did we get something wrong in our rationalization of our decision? There is no way to know. It is more common, however, with first-time entrepreneurs than with those for whom it is not the very first funding round in their lives. Perhaps experience and quite simply emotional resilience play some role here.


It made me think – what could be done to improve this part of the process even more on the side of the investor? On the other hand, I realized that if I would be an entrepreneur myself, I would treat investors’ declines differently.


Key points


  • Declines are important
    • They could be handled in a meaningful and proactive way
    • They could be a first step in the formation of a strong, long-lasting relationship
    • Handling declines in the right way could enrich an understanding of each other
    • It is an invaluable opportunity to share feedback and learn along the way.
  • There are no abstract venture capitalists or entrepreneurs. They are always real people. “Remember human” is a golden rule, not just for netiquette.


On the VC side:


  • Be honest with yourself and be transparent with the other members of the team. Procrastination with a difficult decision is not so rare, as one can easily admit – however, an entrepreneur may not be aware of the internal struggle
  • Manage expectations upfront. The stage of the investment that you are focused on, specific verticals, etc. – all of that information can help the entrepreneur better assess his or her chances, as well as to better tailor the message.
  • Encourage clarity. It is best not to brush aside things with vague sentences, but rather provide real feedback. Didn’t like the product? Say that. Don’t believe in the business model? Explain, but, of course, not just with a “your product sucks” or something like that. Do so in a meaningful and constructive way. Be respectful.
  • Be as quick as possible. I know that too often it can be hard to do, and, overall, it is easier said than done. It is important to at least honestly aspire to be reasonably fast, even if it is much easier to settle with “bigger guys on the block are even slower, so it is not a problem for us either” mentality.
  • As Brad Feld recently put it – just respond! Even a quick, concise, letter of a few words is better than nothing. Sometimes there is really not that much to tell – guys, we do not invest in industrial robots, even if you are making the best in the world. It is not an issue to reply simply and quickly.


On the entrepreneur side:


  • Simply respond. Even a quick “thank you” is better than nothing. Do you remember the awkward silence, as is so beautifully explained in “10 faces of innovation?” After all, if you do not want to deal with this person — either because they didn’t offer money, or perhaps you just don’t see how they could be of any help —  are you sure you wanted this investor in the first place?
  • Try to understand the real reasons behind the decision. Is there any useful feedback that you can use in your future conversation with other investors or something to think of in regard to your strategy, product, or business model? Quite possibly. You are not going to get money – this time, at least – but why not to utilize the situation 100%?
  • Ask if you can get back in touch in the future. Sure, perhaps, you won’t get the investor this time – what about taking them on as a mentor that, later on, turns into an investor? At this point, you can determine the interest level of the VC.
  • Try to be professional and not be too emotional. Nobody expects that you will be happy and excited about a negative decision, but it is equally as unlikely that anybody will enjoy reading death threats either.


Final thoughts


It could be argued that the number of deals that hardware-only VCs  like Grishin Robotics sees is less  than bigger firms / firms playing in other verticals, and, thus, have more opportunities to deeply dive into the companies and writing more thoughtful feedback. However, the numbers we have recently calculated show that the funnel/ratio is largely in. alignment with other VCs of a similar size/style, even playing in other verticals – judging from private discussion with other firms. And the quantity / quality ratio is not dramatically different, so I would not consider the task of handling declines properly as more difficult for firms playing in other verticals than it is for us.


Again, I am not saying that it is possible to write deep, lengthy answers to everybody – it doesn’t make sense to do that if one didn’t really spend time on analysis. However, the more time you spend with a company, the more you are, in some sense,  obliged to pay them back with your thoughts and feedback.


How do you usually handle declines from investors? How do you usually give declines to entrepreneurs?  Do not hesitate – share your thoughts in the comments.


Thanks to Ian Fichtenbaum from Near Earth for reviewing the draft of this post.