Passed on investing in a startup? Give the entrepreneur worthy feedback.

I was struck this morning by a post from Airbnb co-founder Brian Chesky. In 7 Rejections, Brian shows us emails he received in 2008 from “7 prominent investors in Silicon Valley” who decided to pass on investing in Airbnb’s $150k round. When reading these rejection emails, what strikes me is less the decisions that were reached, but more the way in which the investors communicated their decision. Of course, I’m only privy to what’s shared here and don’t have any other context. This caveat notwithstanding, I think a few things are worth noting from these conversations:

• 2 investors never responded. Why? I appreciate we’re all ‘busy’ (inverted commas because there’s no universally acceptable definition for what that means). But when an entrepreneur is introduced via a mutual contact, they’re definitely owed a response. Especially if the intro was double opt-in (please, always do this!).
• 3 investors gave nebulous, non-actionable reasoning. One investor said the market is too small “for our required model”. Fair, but what is your required model? Why not share your unique view on the market and explain how the model works? (if you did, I apologize!). Another said the opportunity is not one that the fund pursues — again, fair, but not that helpful for the entrepreneur. Why not share a nugget of insight as to why it’s not “something we would do here”? Who might it interest instead? The third investor said that they’ve struggled with the travel space, although they acknowledge Airbnb is a marketplace investment. Why not explain the challenges you’ve faced and give the founder a chance to prove your priors wrong? Might learn a thing or two. Might not.
• 1 investor outlines 3 sticking points, but they focus on downside mitigation rather than upside optimisation. “Technical staffing” and “investment syndicate” are definitely solvable issues and, in fact, areas where investors can add value. A lead investor builds a syndicate and often helps with building team. Startups are inherently full of risk and uncertainty. One should invest because a company and team has strengths that can be leveraged to weather the inevitable storms rather than because it lacks visible weaknesses.

Every communication we as investors have with entrepreneurs is an opportunity to impress professionalism, thoughtfulness, value add, and respect for their hard work. We are privileged to partner with companies that are building the world of tomorrow. I know most of us behave that way, but a healthy reminder never hurt.

It’s our responsibility to give clear feedback to entrepreneurs on why we make the decisions we do. Not every opportunity is investable. In fact, fewer than 1% of the deals ever are. Our inboxes are flooded, I understand that. Explaining one’s reflections on a market, product, team, traction, technology, competitive landscape, and customer research, however, often leads new ideas that inform the future development of a company. Moreover, only by debating, researching, and documenting our decisions can we pragmatically assess our investment decisions. Sharing our rationale with founders is one of the easiest ways to tick these boxes while paying the respect to people who will go on to build the products we shall hopefully be using every day of our lives.

Thoughts or comments? Ping me on @nathanbenaich.