How to Take a No
Last night, Villi Iltchev, a partner at August Capital tweeted:
https://twitter.com/villi/status/964294447021277184
A little background on Villi. I have known him for years, back when he was doing corporate development at Salesforce, and have had the pleasure watching him go from the operator side of the table to the investor. He is always open and public about his learnings and growth, and I absolutely love the fact that he cares enough about the founder to think through these things.
When I read this tweet something tickled the back of my brain. I thought about the hundreds of no’s I had gotten over my career and how often listening to an investor’s reasoning was helpful. I realized that since a no is rarely a simple thing (it probably had multiple vectors), and there were expected roles for the investor and founder to play in the pitch process, that the explanation was probably not as useful as people may think.
https://twitter.com/micah/status/964758182378708992
That sparked some interesting discussions (I always find the “like” function of twitter to be a passive way to be involved in a conversation semi-privately), and ultimately:
https://twitter.com/micah/status/964764504125927424
The Pitch Dance
Here are four truths:
Every founder thinks that every investor is going to say yes, and are distinctly surprised and disappointed when one doesn’t.
Every investor understands the power dynamic and (usually) feels pretty bad at saying no, because they over estimate the impact of that no.
Investor pitches are two sales people trying to convince the other of their future potential. You are either selling money, or you are selling opportunity.
Every investor is biased either due to pattern matching or unconscious bias. Be it market, company-type, product focus, or gender, race, or age. I am not saying every investor makes decisions based on gender/race/sexual orientation biased. I am saying we all are (hence the word unconscious), and some put in more work to overcome that bias. So are founders, because of #1, sometimes to justify the no, the founder will apply a reason that is not the primary driver (ex. I have often thought my tattoos have led to no’s.)
EDIT: I added #4 above after a conversation with Lizelle van Vuuren on twitter:
[embed]https://twitter.com/heylizelle/status/965100655411998720[/embed]
Honestly, I do worry that if the no to a female founder is due to bias wouldn’t the feedback be equally biased? But I understand and agree with the above statement. A week ago a female founder of color asked me “Will I have a problem raising money as a Black woman?” It sucks to have to say yes.
Because of this, many founders walk into a pitch with outsized expectations of success, figuring that they can sell their passion (especially in the pre-product/market fit phase) to overcome deficiencies in the company.
Often, they are near desperate. Money is running out. They started raising too late. Savings are dwindling. It is the very definition of “make or break.”
On the investor side, they can feel this. They are not without empathy. It is impossible, in situations like that to not be sympathetic...even when the no is clear within the first five minutes of the meeting.
A No For Every Reason
Why do investors say no? Usually because they don’t believe in the opportunity. Yeah, it’s that simple. If there was real opportunity, they would write checks all day.
Unless they can’t write a check because the fund isn’t deploying capital. Or because they need to have a specific ownership percentage. Or they have already committed to the maximum number of deals that year. The partnership doesn’t agree on the investment, and politically, the partner isn’t going to fight for it.
A no is rarely a no because: 1) the team sucks; 2) the idea sucks; or 3) the market sucks. But, sometimes it is.
The bottom line is that a no is a no from that investor. The same pitch about the same opportunity to different investor might be a yes.
Crossing You Off The List
As a founder, I am expecting to pitch 100 investors at each investment stage. That’s my personal expectation.
I get a no, cool, I have 99 to go.
Founders (and I think as investors), tend to apply too much magic to the pitch process. Too much emotion. It always reminds me of the Cheers episode The Executive’s Executioner where Norm is hired to fire a bunch of people at work. At the beginning of the episode, he takes the person to a ball game, dinner and finally the bar where full of tears, he lets the person go.
By the end of the episode, after dozens of firings, he can’t shed a single tear.
That’s how I always view pitching a VC. It’s transactional. I am presenting me, the team, the idea and the market, and you get to decide yes or no.
It is (I hope) never only about me. So why be emotionally hurt by a no?
It is (almost) always a series of reasons that are SPECIFIC to the investor. So why do I need more than a no + simple, direct, honest reason?
A no is just one more strike through on a list.
What’s funny is that as an investor, I am not sure that what I just said makes me feel good. I want the pitch to be full of emotion, I want it to be the start of a relationship. Shit, almost all of the investors who I am friendly with told me no, some pretty emphatically.
But, I also realize that might be the basis of the toxicity that can bubble up between founders and investors (creating a power dynamic that in its most evil creates sexual harassment, racism, and other awful, evil things.)
Removing Ego From a Personal Process
Jeremy hits it exactly here:
[embed]https://twitter.com/Jer_Diamond/status/964767157375590400[/embed]
And with that one tweet, said it better than I ever could. Founders are not applying for a job, they are selling a piece of their company. We don’t buy every car we see, right?