Handling rejection like a pro might mean the difference between the end of the road and the beginning of a longer conversation.
At some point or another, most startups need capital. Finding it is a bit like finding the right needle in a haystack and the grind can discourage even the heartiest of founders. The way you manage the process (and the inevitable ‘passes’ you’ll receive) is more important than you may think. The venture capital world is small, and your paths are likely to cross again. How and when depends in large part on the impression you leave.
We look at a lot of factors when making an investment. Founder passion and fit are at the top of the list. We invest in founders with the drive to make things happen, and the dedication to overcome the inevitable challenges of starting a business. It’s also important that they work well with our team.
As a Founder, you should look for partners that will challenge and support you. Startups are stressful, even with the best team behind you. Poor relationships between founders and their investors can wreak havoc on a business at any stage.
Prospective investors look for deals that fit their investment model. Even if we like the business, it may not be right for our portfolio. Factors like the type, size, and business segment all weigh in to our decision. We are also influenced by the type and state of other businesses we’re currently invested in. Category conflicts and confidentiality issues are considerations. A pass often has little to do with the validity of your business and more to do with our current relationship status – a classic ‘it’s not you, it’s us’ scenario and one that shouldn’t hurt your feelings.
On the bright side, don’t forget that the investor community is small and a lot of deals flow between firms, instead of directly from founders. We’re motivated to facilitate good deals for other investors just as we appreciate receiving leads that might fit our investment criteria.
Most fundraising rounds have multiple investment partners, making us familiar with each other’s investment preferences. A positive response to rejection will make us more motivated to help you move forward, even if it’s not with us. If you don’t close a deal, keep your best foot forward and maintain the relationship with the investors you meet. Keep us up-to-date on progress and major milestones.
The better informed we are on your progress and the more top-of-mind your business is, the more likely we’ll be to recommend it when we come across a potential fit. Over time your business may also become more interesting to us if our own focus changes and our portfolio evolves. As businesses grow and become stable, they require fewer resources from their investment partners, leaving room for new ones to take their place.
Good relationships with investors (even ones who don’t invest) are evergreen; a good source for advice, introductions and honest feedback. Many investors take time to provide in-depth feedback when they pass on a business. This is valuable information not only about potential red flags in your pitch, but also on the characteristics of a business they’re more likely to invest in. If yours evolves, you’ll know what points to hit when you get back in touch.
Don’t take ‘no’ as the end of the road. It might not yield any immediate success, but if handled properly it will lead you somewhere worth going. It might not be the most direct route, but at least you’ll still be making strides.