So let’s say a VC or an Angel Investor said no to investing? What do you do now?
This is a difficult but inevitable moment as a start-up. Here is how can you look on the bright side and turn a rejection into a redirection.
These rejections can be painful, especially if you thought you were a good fit, or that you got on well with the partner.
Entrepreneurs must understand that venture capitalists sometimes filter more than a thousand start-ups annually and can only invest in a handful. The simple point is that money from a VC is hard to achieve, and can be more about them then you.
Therefore, by definition, their job is to say “No.”
Understanding exactly what they are looking for is the topic of another article.
1- After every meeting, and certainly if you are rejected you should reply courteously, you did very well even getting to this point!
At this point it stings, we know it does and there is increasing presence of VCs offering good feedback. Furthermore, if the VC only offers advice at Series A rather than Pre-Seed or Seed it is likely you are outside of their mandate, expertise & risk appetite. If so, keep them engaged, things may change as you grow as a firm.
2- Listen to their feedback!
Self awareness is critical within this industry, an understanding of your PMF, your issues, your competition is important and shows where you can grow and where you can sink if not addressed. Make sure to keep them in contact if you know this is a particular barrier to their investment.
3- Maintain a long-term relationship with all your VC contacts.
If you have been thankful for their time and had a good ethos it is likely the VC will attempt to intro you to another investor that could potentially be of interest or more sector focused.
Furthermore, As you promised earlier, make it a habit of keeping all your VC contacts updated on your progress. They may find you relevant down the road. Also, circumstances do change, and after a couple of years you might lead a new start-up or they might work for another VC at which point the circumstances could be ripe for investment.
4- Don’t fall in love with your idea.
This last point is easier said than done, we know its your baby and that you are more knowledgeable then us. As an entrepreneur you should assess your own startup in an objective way and put yourself in the shoes of the investor. Perhaps your startup is not, and will never be, fundable by a VC? Maybe a different class of funding is necessary, maybe a pivot is necessary?
5- It’s not the end of the world.
If a singular VC or Angel rejection will get you down then how did you get to this point?
There were likely a million reasons why you could’ve pulled the plug on this, this is the millionth +1.
An understanding of why VCs & Angels reject firms can be broken down to several key insights:
Too early vs Too Late, you likely should’ve done better diligence around previous investments. Keep working and relations, one day maybe
No Sector Experience, would you really even want them on your cap table?
No Dry Powder, This is difficult but fair, it is likely they will introduce you to a similar investor
Limited need for VC money, potential to look into different investment structures.
They don’t back you, the Founder or the Founding Team,
This is the most stinging version, but it is also the one with the most controllable aspect. There may have been many factors behind this, different communication styles, experience or otherwise. You will just have to prove them wrong!
Low ARR vs Valuation & Low M&A potential, If a VC sees a limited chance of exit this can be difficult for them as they promise investors an ROI and must meet it. Likely if you are courteous, they will help you intro to a different more suitable investor.
Summary:
VCs are people too, keeping a good relationship is critical to the future and likely can yield investment either the next raise or in the next investor.
Furthermore, VCs have to add advisory, experience & value to you as well.
