The Quick “No”

a founder’s second best outcome!

We built Prime Movers Lab fully aware that being a “founder friendly” venture fund is an easy thing to claim and a rare thing to consistently implement. Even more interestingly, many of us had worked closely with funds who not only claimed this, but sincerely wanted to, yet still fell short of what we wanted to promise to the countless entrepreneurs out there striving to make unique contributions to our world.

There are many subtle ways we insist on finding ways to “leave founders better than we found them”. For example, in our first calls we like to get to know the founder and explore what their biggest pain point is to assess where we can help.

Today’s topic is a more concrete example though, and one that can be counter-intuitive: Rejecting a company promptly.

If a founder’s ideal outcome after pitching us is to hear a “yes”, then their second best outcome is to hear a “no” as efficiently as possible.

Common obstacles to this are…

• What if we suspect this isn’t a fit, but they encourage us to further explore their technology in hopes of changing our minds?
• This isn’t necessarily a waste of time, they might change your mind and be happy to take that risk. Interestingly it often benefits the VC to further investigate as well, if only to better understand the potential market as a whole.
• The simple answer is to never go deeper into diligence without making it explicit that “after this initial round we have doubts that this will be a fit” so that the founders can prioritize potential investors from an informed place.
• What if we are leaning towards a “no” but are reluctant because we sincerely feel we may be missing out on an extraordinary opportunity and really do need more time for customer reference calls?
• While this is the “good” reason to not immediately pass just because you have doubts, it’s also a good reason to become masterful at keeping each and every conversation focused on the top things you must believe in order to feel good about investing.
• What if we’re certain we are going to pass, but it’s likely going to come to a surprise to them and we don’t have the time to craft an email that constructively explains why (such that they can at least learn from the experience)?
• A “no” is rarely a surprise if you practice sharing feedback at the end of each conversation. Too often investors just end a diligence call thanking the founder, but giving zero feedback about how convinced they are and what biggest doubts remain. Even at the risk of someone being upset, sharing your process with them allows diligence to become more of a collaborative process and less of an unpleasant surprise at the end.
• This becomes easier when you remember that different founders have different approaches to pitching their company. Don’t assume a founder should change just because something wasn’t persuasive for you. Email them the “no” promptly and include an acknowledgement that it was an honor to be let in close to their company and that you’re happy to have a post-mortem conversation to explore what (if anything) might have made it more difficult to pass up the opportunity.

One of the most common ways to fail at being “founder friendly”, even with the best of intentions, is to allow diligence to drag out such that it truly burdens the founders from their most essential duties. I hope this can inspire you to find your own authentic style of being direct, courteous and on the same page throughout that process.

Prime Movers Lab invests in breakthrough scientific startups founded by Prime Movers, the inventors who transform billions of lives. We invest in seed-stage companies reinventing energy, transportation, infrastructure, manufacturing, human augmentation and agriculture.

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