Why we really didn’t invest, and why we never called to tell you
Even before joining the VC world, the most common complaint I heard about investors was that they never call to say ‘No’, or take months before doing so.
Becoming a VC myself, I swore if I can only do one thing right — it would be giving every founder I decide not to invest in a properly reasoned ‘No’ — delivered over the phone.
I mean, how hard can that be?
Since then, I learned an interesting truth about that ‘No’ and what makes it so hard to deliver. I hope some founders benefit from hearing our side, and maybe get less frustrated when investors don’t call back or don’t provide a reason for rejection. I also hope this will inspire more investors to get over these challenges and call to reject more often.
We haven’t actually decided not to invest
The weird reality of the venture business, is that I only very seldom make the decision not to invest. In 9 out of 10 companies, I merely decide not to move forward with my research. I wish I had enough time to thoroughly analyze every startup I meet, but unfortunately, my first — and hardest — decision after first meeting a startup, is whether to go deep or stop the process before going deeper. This means that in many cases, the real reason behind the ‘No’ is that I didn’t get excited enough about it from first impression, or that I couldn’t think of good ways to pursue a more in-depth research.
We don’t really know
By definition, the founder knows about his business a lot more than the VC, so even my most extensive due-diligence will be poorer than the diligence any founder would make before deciding to dedicate his life to a venture. Unlike late stage investing or public markets, venture investing is a lot more art than science, and much of it boils down to personal opinions rather than facts. There isn’t a real way of proving people are going to start taking a scooter to work or wish to have their therapy sessions over text messages.
When 90% of the job is finding reasons not to invest, I know I often say no to startups that end up becoming amazing companies. I sometimes find myself hoping the founders I reject will end up proving me wrong, and I never feel confident saying no to any founder.
We like to keep our options open
This is the worst reason of all to why we don’t call back, but also the one easiest to overcome.
As the feeling of uncertainty makes the pass call hard to make, the Fear of Missing Out makes it even harder. It’s easy to think you’ll make the investment if the company shows traction over the coming months, or if you hear positive buzz around them — and let the months go by without investing or rejecting.
Our team’s way of overcoming it is simple. We have a list of all active deals which we review every week. Every founder we didn’t yet call to give an answer to is considered an active deal and every active deal must be reviewed. So if we don’t call a founder, we’d have to discuss her company again week after week.
We also remind ourselves that founders are much more likely to want us in the deal if we call and say no, and perhaps a few months later call and ask to reconsider, rather than letting them wait months (in fact, we already did this in one of our investments).
An apology
I dedicate this post to the founders I’ve met or spoken with and for some reason haven’t called back. Whether it was because I accidentally marked you as an inactive deal, couldn’t reach you, or took so long to reach a decision that I was embarrassed to call. I hope you did so well you didn’t even remember I was supposed to call back.
