Getting To “No”

January 30, 2017  |  By

Obviously, when talking to a VC the goal is to get to a “yes” and land an investment. But for a startup with limited resources, getting to “no,” so that the startup can move on to the next investor and out of investment decision limbo, can be nearly as important.

One of the biggest frustrations we hear from our clients about the capital raise process is that VCs are non-responsive or unwilling to make a firm investment decision. To help with this, I reached out to several VCs whom we see on a regular basis to ask for their input. Special thanks to Blossom Street Ventures, Deep Space Ventures, Interlock Partners, Live Oak, and Trailblazer Capital for their quick responses.

Listen to this Twenty-Minute VC podcast episode with Brian Ascher for valuable pitch advice

The responses were unanimous in understanding this as a concern for entrepreneurs and acknowledging that the turn-around times from a VC may not always be optimal. One of the VCs commented that they look at around 800 deals per year and do deep dives with several hundred, only a handful of which result in an investment. This is consistent with what we know from talking to VCs for years- an active VC is going to see a lot of deals. As you’ve probably read before, the investment to deal flow ratio for a VC is typically less than 1%.

Understand that VCs are trying to generate as much return as they can with the capital and time that they have available to them. Capital is rather fixed, and time is the variable somewhat under control. Thus, VCs are motivated to be efficient; they should want to make a yes or no decision as soon as possible.

If a VC is stalling, and there are no more questions to be answered or due diligence docs to be delivered, then the answer is likely no. Joel Fontenot of Trailblazer Capital points out that when the process gets delayed, it’s generally at the Company’s expense.

But there are some things a startup can do to be proactive and move the process along:

  • Ask the startup community about working with a VC. Check with other entrepreneurs and your attorney. Look at the VC’s portfolio on his/her website and reach out to those founders.
  • Have your due diligence items ready to present: pitch deck, financial projections, corporate governance docs, etc. Don’t give the VC a reason to say she is waiting on you.

  • Before engaging with a VC, ask what the VC’s process and timeline looks like. Explain that the fundraising process is critical to your business, but you do not want it to swallow your startup. VCs understand this, but it’s helpful to get it out there.
  • Provided that you asked for a timeline, then it is okay to be insistent with the VC about getting to the next step. Be respectful of a VC’s time and other commitments, but an email or call to check in is warranted, especially when the VC is behind a previously discussed timeline.
    1. Be specific in your email. Say, “Would you mind giving me a timeframe for when I can hear back from you?” or, “Would you be able to have an answer by the ____?” (7 to 10 days should be sufficient.)
    2. One VC principal wrote back to me, “If you check back twice and hear nothing consider the answer to be no – if you want to push a little harder in one more try, you have very little to lose.”
  • Recognize that there are two sides to the investment relationship; a VC should want to invest with the same enthusiasm as you want an investment. Don’t be afraid to pass if you’re not feeling it. Be honest with the VC about this. She’ll appreciate the candor.
  • Set your own deadlines and stick to them. Work with your board and advisors on this. Every startup is different, but generally you don’t want to be fundraising for longer than 90 days.

The reality is that the vast majority of your VC relationships will result in a “no.” That’s okay. As my colleague Aaron Terwey wrote in “Learning from No,” use a “no” as a learning tool and move on. But it’s important that you understand you do have rights (heck, LiveOak has an “Entrepreneurs’ Bill of Rights”) and that the investment process is mutually dependent. When done correctly, knowing how to push to a “no” can be a valuable skill for any startup.

Posted in: Pitching/Decks

About the Author(s)

Kevin Vela

Kevin is the managing partner at Vela Wood. He focuses his practice in the areas of venture financing, M&A, fund representation, and gaming law.

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