I recently finished a two-week process with a great early-stage founding team that was solving an long-standing, exciting consumer-facing problem within a large market. I initially briefly met the founder and his entire team. We had two follow-up 45-minute conversations. He was prompt in our discussions, sent me detailed projections and data early in the process, was on top of his models and knew where he wanted to go. The valuation was appropriate for the stage. I liked the founding CEO personally and could see myself getting along well with him.
The founder’s time is more precious than the investor’s. When a process is conducted like the one described, two or three weeks is enough time to make a decision. If you don’t know the space, then pass and spend more time learning about it. Some VCs who say they need all kinds of touch points over many months to make a decision, in my opinion, are not respecting the founding team’s time.
Ultimately, we could not get comfortable with how quickly the product could scale. The startup had two excellent ongoing customer pilots, but it was just too early to draw any conclusions from the data. I had to say no and share our detailed thoughts with him about how we came to our decision. I could be completely wrong (and probably will be!), but I had to respect the team’s time and bow out of the process.
To his credit, the founder understood our decision and thanked me for my time. He handled it professionally and maturely, and this spoke volumes about his character and elevated my respect for him more.
The Reality of Saying “No”
Respect the fact that saying “no” to a founder may very well mean you may never have another chance to invest in the company again. Let the founders decide how much they want to communicate with you if you say “no” — don’t ask for updates unless the founders choose to update you.
In the above case, the founder stated he wanted to keep me updated on the Company’s progress. I hope he will, but I am realistic to know that if he and the team succeed, others who spoke with their dollars early will get first dibs in future growth rounds. That’s just the way it goes.
One corollary to this: there are times when we say no but like the team so well that we send customers, talent, and other referrals to the startup where appropriate. I am rooting for this team to blow it out, and if we’re helpful, maybe (just maybe) if there’s another opportunity to invest in the future, we’ll get a call.
Recipients of this post are not to construe it as investment, legal, or tax advice, and it is not intended to provide the basis for any evaluation of an investment in any fund. Prospective investors should consult with their own legal, investment, tax, accounting, and other advisors to determine the potential benefits, burdens, and risks associated with making an investment in any fund.
