The Disappearing Act (aka The Worst Way of Saying No)

If you’re someone that’s spent time working in the startup industry, you’re used to hearing “No” by now. You’ve also probably had to say it a few times too. Chris Dixon had a great line a few years back that we’ve always liked:

If you aren’t getting rejected on a daily basis, your goals aren’t ambitious enough.

The truth is that most people are really bad at saying and hearing no. What follows are some of our own stories while starting Notation Capital, and our pledge to do it right.

During the months raising our first fund, we had conversations with well over 100 potential LPs, so we heard our fair share of no. Each investor’s process is different, each person says no in their own way, but the wide range of professionalism was actually quite shocking. It was an important reminder for us as we work with founders, think about the Notation Capital touch points, and ultimately hope to build a brand that represents high character, transparency, and hard work.

The Three Types of No — Good, Bad, and Ugly

There were several LPs we met with during the process, people like Strauss Zelnick, Ed Hutchinson from Golden Bell Partners, and Josh Abramson, among others, that took meaningful time out of their schedule and engaged in thoughtful, direct, and helpful conversations with us. They gave us similarly thoughtful, decisive, and quick responses when they decided to pass on the opportunity to invest in Notation Capital (each for different personal reasons). In each case, Alex and I couldn’t help but think that regardless of the investment decision, these are people, at some point, somehow, we’d like to find ways to work with. That’s a good no.

Throughout the process, for every good no, we heard one or two bad ones. Of course we had some bad meetings — folks that just didn’t get what we were doing— people that didn’t necessarily understand startups or technology or venture capital as an asset class. Those folks weren’t the worst no’s, because they were expected no’s, and vice versa they weren’t the right investors for us. It was good to figure that out quickly.

The really bad no’s were the ones that took forever, and at the end of a long process, were unexpected.

There were a few LPs we spent a lot of time with, in our hearts knowing that they weren’t really right for us, but like moths to a flame, we continued spending time with them. It was the wrong decision and a waste of our time. So here are some guidelines to avoid the bad no’s:

  • If you feel the investor has all of the critical information available about your business, you must force her to make a decision and move on. More meetings at this point are almost always a waste of time.
  • If it takes a week or more for an investor to respond to your email, he’s not interested.
  • If an investor spends most of the meeting looking at her phone and is not asking questions and engaging, she will almost certainly not invest in your fund or company. Also she’s rude, so you don’t want her on your board anyway.

After years investing and helping companies raise capital, we knew this well, but it’s difficult nonetheless to avoid these fundraising traps, and we wasted lots of time by not being fully disciplined. This should have been our response to these situations:

Thank you for your time, appreciate getting to know you, but it doesn’t sound like Notation Capital is a good fit for you. We wish you all the best and hope to cross paths again one day soon.

The Disappearing Act

Even worse than the really bad no’s however, was something that we started referring to as the “Disappearing Act.” The Disappearing Act occurs when you’ve been through several meetings with an investor and by all measures things seem to be going really well, moving in the right direction…and then…YOU NEVER HEAR FROM THEM AGAIN. EVER. It’s mind boggling and it actually happens in real life.

It goes something like this:

  • Email #1 — Routine followup email, thanks for the time, etc.
  • Email #2 — Hey. Just checking in. Would be great to understand next steps.
  • Email #3 — Hey. Haven’t heard from you, thought there might be a good fit. Let us know if it’s worth continuing the conversation.
  • Email #4 — Hey we’re closing. Let us know either way.

The exchanges sound a lot like a bad breakup, and it kinda feels that way too. A couple of times this happened we considered writing a preemptive breakup text to close the loop.

The point is that both a bad no as well as the Disappearing Act happen all too often and are terribly frustrating for folks raising capital. This happens because (a) some investors simply find it difficult or awkward to say no and/or (b) an investor is trying to preserve optionality by delaying a decision until the very last second. Both are poor practice and in the long-term brand damaging for the investor.

Our Promise at Notation Capital

These experiences have informed our own process at Notation Capital. We already do this in practice, but it never hurts to write it down for everyone to see:

  • Because we’re focused on investing at the “pre-seed” stage, many of our initial meetings are intended to be relationship building with founders that might be considering building a product or starting a company in the next 6–12 months. These meetings don’t necessarily have concrete outcomes or next steps. That’s OK.
  • For founders that are considering raising capital, formally raising capital or who let us know that they’re expecting a decision, we respond with a definitive Yes or a No within one month of the initial meeting.
  • If we love what you’re thinking about and/or starting to build, we may well offer you a term sheet whether you expect one or not!

This simple process and pledge will undoubtedly change over time as we continue to learn, but if you have any feedback, either as a reader or a founder who’s met with us or who is thinking about meeting with us, we’d love to hear it. Our hope is that just like those special few LPs we met with that gave us decisive, quick and thoughtful no’s, that every single person we met with walks away thinking, “Wow, I really do hope I get the chance to work with those Notation guys at some point.” And hopefully they tell their friends too :-)

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