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March 28, 2013

media_icon_dislike_400_clr_9164I think I am a very positive person. Having grown up in rural Vermont, my wife often times describes me as an “optimistic farm boy.” I love innovation,  truly believe in the goodness of people and that the future will be better. So, why is it that I chose a profession that forces me to say “No” most of the time and moreover, encourages me to give critical feedback to energetic entrepreneurs that often verges on crapping all over their innovative ideas?

Few VCs would describe one of their main responsibilities as saying “No,” but in reality it is.In 2012 I reckon I officially said “No” to entrepreneurs about 99.8% of the time that they asked me for money (according to our internal deal log). And this doesn’t count the times at conferences, weddings, bar mitzvahs, soccer games and yes, sadly, even funerals, that I received informal pitches and wafted an air-biscuit of rejection in the idea’s general direction. I don’t want anyone to lament for me; as I know I have one of the best jobs on the planet, because everyday I get to meet with amazing people who seek to change the world, and I get to listen to their stories and plans. So in saying “No” so often, I want to make sure I say it well.

I think there are two critical elements to saying “No” well, while doing my job well:

  1. Being right most of the time when I say it, and more importantly when I don’t;
  2. Saying it in such a way that I show the respect due the receiving party.

First the easy part. As far as “No’s” go, it’s been a while since I looked at my own antiportfolio, but suffice it to say I have made some spectacular mistakes in “No’s” over the years. For the sake of illustration, I’d probably bookend my career at this point with Akamai and MakerBot as chief blunders. Saying “Yes” is harder than saying “No,” and for sure I have made a few mistakes on this dimension. (I’ll spare  the details). Ultimately, Venture Capital is a game of numbers, and a VC’s performance – the right “No’s” and right “Yes’s” –  needs to solve positively, or a VC no longer gets money to invest.

In part no doubt due to natural conflict aversion, the harder part for VCs appears to be saying “No” in a way that shows respect to an entrepreneur. The old way in VC was to never really say “No” at all, for fear of the repercussions: the entrepreneurs would become successful and hold the “No” against you in the future, or would tell their friends bad things about you. While I am sure there are many others, I have noticed two common strategies for delivering the “Soft No”:

  • “the phone-tag game” – never actually connecting to deliver the news,
  • “Dorothy and the Wizard of Oz” – creating a set of unattainable milestones only after which we’ll fund you,

What ever the meme, many VCs seem to do everything possible to avoid giving entrepreneurs the real reasons they’re turning them down. The rationale I have heard most often is that this avoids getting into a prolonged argument with the entrepreneur that could deteriorate and leave really hard feelings. I think this is baloney.

Personally, I feel that any entrepreneur who has the guts to present their idea out loud, whether primordial or well-formed, is taking the ultimate risk in putting themselves out there and deserves open feedback . I strive to respond to every single business idea pitched to me –  with honest reasons for saying “No” if that’s the outcome.  The feedback varies from the very light (“not a sector in which I am interested), to much more in-depth and specific to the particular business. It gets trickier when we pass on an investment because of unambiguous and confirmed negative feedback on personnel, as it is generally given under guarantee of non-attribution. Providing meaningful feedback without betraying confidential sources is quite difficult, especially if one doesn’t really know the entrepreneur well.

No one likes getting turned down.

4 Comments leave one →
  1. ASG permalink
    March 29, 2013 4:59 pm

    Hi David,

    Nice post. 🙂

    I think it’s fairly obvious, but a great entrepreneur must survive many no’s on the way to building a meaningful business…from prospective customers, employees, and of course investors.

    A great entrepreneur never stops until it’s unequivocally clear that the market doesn’t value his or her solution.


  2. April 1, 2013 11:59 am

    If I were raising funds, I would certainly appreciate a forthright “no” more than being strung along for a while. Have you ever had instances where you wanted to get to “yes” but either didn’t or couldn’t work with the entrepreneur to help her get there? I would think that if you are able to say “yes” that is a good thing (for the VC firm and the company) and so working to get there is also advantageous. Is there anything an entrepreneur could do to solicit that advice without being annoying (clearly not at family events)?

    • April 2, 2013 6:48 pm


      I can think of several times when I wanted to get to “yes” but needed the entrepreneur’s help to do so – but couldn’t. Some of the times it was a size of market question where I needed help in painting the picture of how the opportunity could potentially grow to be massive (see my post on Foothills and Basecamps), Other times it revolved around some senior team adds. In one case, a current portfolio company, the initial market seemed too perilous to try as a starting point, but we worked the team to identify and vet other markets that seemed better – and then we invested.

      As far as how to get the VC to work with you to get to a “yes” I think it starts with a strong connection between the founder and VC and a genuine interest from the VC and not just lip service. With this, simply asking if there is a way to work together to get to a “yes” is the way to go. But be careful to ask the VC what the rest of his/her partnership feels on the investment to make sure there is no radioactivity internally …

  3. May 21, 2013 9:21 am

    I clear NO with an explanation is 200% better than the soft no or worse the stay in touch… Like you I am surprised by the Makerbot success. The 3D Printer market seems to really be on fire. There are 3 startups that I know of here in Boston in this space and I suspect even more. I wonder if these guys will get a NO, yes or stay in touch???

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