Why Don’t Venture Capitalists Tell You Why They Won’t Invest?

Today, I was asked through AskTheVC the following question:

‘”Why don’t VCs tell you the reason why they don’t invest? Any feedback would be useful. It’s just plain rude.”

I figured that this is really a personal question, so I thought that I’d post on my personal blog, as I certainly can’t speak (or even guess) the response for the entire VC industry.

I say “no” all the time.  (My partner Brad talks about “saying no” in a great post here).  In fact, I say no to over 90% of what I’m invited to invest in immediately.  On top of this, I get several to many emails a day regarding investment opportunities. 

Time is a resource that I don’t have nearly enough of.  Therefore, if your company is not doing something that we’d invest in, I feel the best use of my time is to send a quick email saying that it’s not right for our fund.  For me to give feedback on your idea, business model, team, etc. seems arrogant given that I haven’t spent any real time evaluating your company.  I’m not trying to be rude, rather, I don’t feel qualified to give you opinions on something that I’ve only taken a short gander at.  Unfortunately time constraints don’t allow me to deeply look at companies that aren’t right for our fund. 

For the other 10% of things that I spend time on, I do try to give some meaningful feedback, but sometimes it’s easier than other times.  Sometimes, there are one or two things that I have strong opinions about which I’m happy to share.  Sometimes, there are things that I’m seeing with our own portfolio companies that are relevant to your company that I may want or not want to share with you.

Lastly, one thing that has always been tough for me to deal with is when the main issue with the company is the entrepreneur(s) themselves.  It’s not easy for me to say “I wouldn’t invest in you” and I try to stay away from that, because people change and improve over time.  But there are times when the opportunity doesn’t involve an entrepreneur that excites me and thus my feedback, generally, is lighter.

I’m sure there are plenty of VCs out there that are rude out there.  I try not to be and hopefully succeed more often than not. 

  • Phil Sugar

    As an entrepreneur

    A quick no is not rude. It is polite.

    Not saying no is rude. (letting somebody think you're interested and waste time)

    Taking lots of time and not giving a reason is rude.

    Not saying no when you can't make up your mind is the ultimate in rudeness.

    There is a disconnect here. Its no different in any form of business. If you have no need of my service/product and tell me that straight up, that is a perfect outcome.

    A quick no is polite, the only time it is rude if your standard answer is no and you expect people to grovel afterwords.

    Somehow people have been conditioned maybe through school that everything eventually is a yes……actually everything is mostly a no, its concentrating effort on things that are a yes and forgetting about the no's is important.

    If you are the one asking, the other parties only required response is no….they didn't ask for you to ask.

    Stupid analogy…..I'm happily married. If you ask me for a date my response is no. I don't owe you anything more than that. It doesn't matter if I think you are attractive/replusive I don't owe you that. If I lead you on because I want to flirt……that's different.

    • Love the analogy.  I’m going to steal that one.  I certainly try to be quick with “no” but also try not to be too harsh.

  • john

    As a serial entrepreneur I've always felt that most VCs don't "tell you why" or even say "no" because they want to be able to say yes when/if there is a change in the landscape.

    There is always the slight fear that they may have made a mistake evaluating the opportunity or that things will change creating an investment opportunity. Keeping the door open to jump in on the current or later round (or even the next company!) is important. This is natural, they just don't articulate it well.

    BTW. In my opinion you should definitely tell an entrepreneur that they don't excite you. The smart ones know that you are investing in them as much as you are investing in the idea. And the smart ones know they get better at what they do over time. They are big boys/girls asking in most cases for big bucks. Treat them that way. They aren't bankers…they can handle it.

    Curious. Do your LP's tell you why they pass when they do?

    • I always say no quickly.  I think “option value” is rude to entrepreneurs.

      Some entrepreneurs don’t want to hear “it’s them” and frankly I get scared of their reactions, but point well taken. 

      As for LPs.  Most of them don’t.  And most of the time they are probably thinking that they just don’t like us.

      • john

        >As for LPs. Most of them don’t. And most of the time they are probably thinking >that they just don’t like us.

        For this response alone my respect for you (which I already had) has grown. Made me laugh…

  • Fred Destin has a great post similar to this: http://www.freddestin.com/blog/2009/10/the-one-se

  • Agreed.  Love the graphic, too. 

  • Agreed.  Love the graphic, too. 

  • Phil Sugar

    The "keeping your options open" is a way to close all your options.

    I like the graphic and he is right.

    There is one other rule I go by, and this can be applied for people wanting an interview, asking for a meeting, etc, etc….they don't apply to just to vc's and everybody should realize that this is best practice…..:I use the term me to mean my organization, etc, and I only take the negative case because nobody is offended by a yes.

    If you ask me then it is very polite for me to answer in a way one level lower than you ask…….


    You reach out in a non personalized blast (no indication you know specifics about me, It doesn't matter if you can use a variable to address me by my name instead of "dear sir") = no response needed

    You reach out showing you researched me and are trying not to waste my time = no without any details

    You reach out after researching me, talking to people I know, find me, get a meeting and we talk = no with some sort of rational.

    One last item. If you use the concept of "an objection is just a reason to argue"…you run into the rule of "you can never win an argument with a customer"

    • All wise.  One other reason that I probably should have included in the original post is that if I’m not interested in something and I provide a lengthy reason “why” all that will lead to is an email back debating, or request for a phone call / meeting on something that I’m not interested in and thus more time gone.

      I always tell entrepreneurs that just because I’m not interested doesn’t meant the company is a bad idea.  I pass on plenty of great opportunities, but with limited time and ability to fund, I need to pick not only winners, but things that really interest me.

      • Phil Sugar

        I agree that its sometimes hard to give a reason because people view that as an opening….i.e. they are so happy you didn't just not reply.

        I've really been studying sales (I think its the most important aspect of business that business schools completely ignore). The two most annoying "techniques" that are taught are: "overcoming objections" and asking a hypothetical question that must be answered in the affirmative to get the other party to start saying yes (there is an example two posts down).

        I have begun to get nasty to both techniques.

        On the first I tell people I have been polite enough to tell you why its a no, if you would like to see me get impolite we can continue.

        When somebody asks me a question like "If I could triple your sales would you be interested?" my standard reply is: "if I smashed you in the head with a baseball bat would it hurt?"

  • i'd generally surmise that a VC who won't say no is probably also one who doesn't do things like blog. but if they do, they most certainly don't respond to commentors… 😉

  • Tim McKee
    • Doesn't sound like the right profile. We invest larger dollar amounts.

      Jason Mendelson

      Sent from my iPhone
      – please forgive iTypos.

  • From my time as a VC, I think the biggest reason most startups don't get funding is because the VC doesn't love the team. This is a pretty tough message to deliver, and I think many VCs dodge around it by either not saying no or asking various questions about what the "team looks like going forward." I've blogged a bit on how a startup founder can unearth that the team is the issue earlier this year: http://www.startable.com/2009/05/27/its-not-me-it

    • Phil Sugar

      I followed this thread with interest because I do try to give back and help out other entrepreneurs since I've done many raises.

      Really reflecting, I guess by the time you get to the pitch phase you are right. All the easy reasons for a no would mean you wouldn't get the opportunity to pitch in person.

      So its almost hardest to give good rational for the people that have invested the most time, because I have to agree with you and Jason you really can't tell a person "I don't like you"

  • Given the information outlined on your "What we invest in page" it is pretty clear, so I would imagine you wouldn't get too many pitches that don't fit within your theme.

    A quick 'No' is generally better, kind of like quickly yanking the bandage off and it allows the individual to move on to the next person to offer the opportunity to.

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  • Phil, unfortunately, that’s a really old-school sales philosophy you were exposed to.  It’s based on so much “acting upon” language, e.g., “qualifying,” “closing,” “overcoming objections (by),” etc.  A much more sustainable, welcomed and cooperative model is investigative.  If we begin by recognizing that the two poles on the outcome spectrum are “it’s a great idea to do business together” and “it’s a terrible idea to do business together,” then we can conduct a high-integrity, mutual investigation to determine where this relationship/concept combo falls on that spectrum.  The key is “mutual.”  If such an investigation reveals that we’re closer to the “great idea…” end, we’ll both want to get it done.  No need for “closing.”  If we’re closer to the “terrible idea…” end, no point to closing.  I’d hope that neither of us would still attempt to ask the other to do it, anyway.

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  • randyjenkins401

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  • Sienna Allingham

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