As an angel investor, you have seen your fair share of promising startups come across your desk, presented to you by a colleague or suggested by a new acquaintance in the midst of a social event. The means by which a deal is able to grab your attention is not nearly as important as what you do with it at decision time. For all intents and purposes, the majority of the time you give the answer, “no.”
The sheer number of blog posts on the topic demonstrate that telling an entrepreneur the answer is “no” is one of the hardest things to do for a venture capitalist – and they aren’t even spending (or refusing to spend) their own money. Even if the entrepreneur is a stranger, this step in the process can still be the most difficult.
Decision time comes with every deal and most of the time, you have to tell the entrepreneur, “no.” How do you say the word and actually mean it? If you don’t, you’ll give the entrepreneur the false hope that there is a chance you will say “yes” later, and unless you want to hear from this individual time and time again, you need to communicate it effectively and be sure they understand it.
Some believe there really isn’t an upside to saying “no” in angel investing. Reasons listed include the fact you might be saying “no” to the next Google, and by saying “no,” you have blocked yourself out of the opportunity for the next level of financing. Perhaps you have alienated this entrepreneur to the point that when she does create the next Yahoo!, you won’t be an investor sought out to participate. If not handled correctly, saying “no” can also create enemies.
As an investor, you are in somewhat a precarious situation. You want to be accessible and you want people to bring deals to you. On the other hand, your time is valuable and so are your assets. You are careful how you spend both and as a result, some people have to be disappointed. The good news is you can find that happy medium where the entrepreneur understands you mean “no,” but you are open to further meetings if another opportunity presents itself.
One VC suggests a direct and honest approach in providing feedback to entrepreneurs to help them with their ventures. Be careful, however, as it can communicate to the entrepreneur that with some changes, you could be a “maybe.” Even you want it re-presented with changes for reconsideration, that’s fine; but if you don’t – make it clear. Honesty is always best – even if it stings a little.
* For series, references are published in the last installment of the series.