Why VCs Say “Maybe” and How You Can Get Them To Say Yes/No
A lot has been written about how venture capitalists are, shall we say, less than direct in terms of communicating a decision to pass on an investment opportunity. If you read the forums on sites like TheFunded, you’ll see a lot of hand wringing about how VCs show high interest initially and then go dark (Guy Kawasaki’s famous S-H-I-T-S principal from his fabulous book Art of the Start). When I was out raising money, this lack of follow-up drove me crazy. I viewed it as beyond unprofessional and downright inefficient. I remember thinking that the VC is either a wimp and is afraid to tell me no or is on an ego trip and doesn’t feel I’m worth his or her time for a simple follow up call.
Now, I’m sure there are some VCs out there that do show that level of contempt for entrepreneurs, but I’m sure that’s not the reason why most do it. Having sat in on a number of pitches as an "acting venture capitalist" here’s the real reason why even a blue-blooded entrepreneur such as myself is sometimes tempted to breach etiquette–the vast majority of entrepreneurs don’t take no for an answer. As they shouldn’t…what company would succeed if the founder quit every time they heard no? Think about it. If someone (particularly a VC) told you that, "they were concerned the market wasn’t big enough" any entrepreneur worth their salt would come back with a detailed presentation on why the market is "conservatively estimated to be $10 billion." So in a round-about way, VCs think they are saving entrepreneurs time by doing this (not to mention saving their own time).
So how should VCs and entrepreneurs best deal with this? The most constructive solution from the investor side of things is one I’ve learned from Steve Murry. I’ve never seen Steve do the high interest / stall thing, instead he either delivers a clear "no and here’s why" that leaves no uncertainty or he delivers a "not now, but here is what could change my mind." And, in fact, I’ve seen the latter actually turn into an investment a year plus after the first meeting, i.e. the feedback has to be genuine. As for entrepreneurs, the best response is to be direct. I think a totally appropriate response a week or two after a meeting without any feedback is to say that you, "normally associate no follow up with a lack of interest and that while you’d love to work with XYZ you want to be efficient with time so unless you hear otherwise you’ll assume there is no interest at this time." If everyone followed these "new rules," the private equity market place would be the better for it.