“No, I Will Not Fund Your Company”
If you are an entrepreneur and you haven’t heard the phrase above, then you probably got one of the following: “why don’t you come back when you have more traction;” “this just isn’t for us;” or (my least favorite), “this looks like a solid double…we only take home runs.”
I do some work for LaunchCapital, a seed stage venture fund headquartered in Cambridge, MA, and have had to break the news to some entrepreneurs. It is not easy to say “no,” and it can be even more difficult to give candid feedback. After all, you risk sounding arrogant and it can invite unwanted debate from an entrepreneur who is (understandably) passionate about his or her company.
I have also had the opportunity to work with several early stage ventures to help with fundraising. When I start working with a company, I state the obvious: “the only certainty ahead is rejection.” The danger is that a) you will get dejected and quit or b) you will miss key opportunities to pick up value during the fundraising process. Below are some suggestions to avoid these pitfalls.
Every day you read sites like Xconomy.com that run stories like this: an alternative energy firm (not yours) raised $8M from a big name VC (who wouldn’t take your call), to pursue the market opportunity that you identified (almost a year ago now). Yet, you never read about the hundreds of companies that do not get funded or that raise less than they want to. According to the Entrepreneur’s Census (www.bit.ly/entrecensus), a not-for-profit study that I founded last year, 70 percent of respondents raised less funding than hoped. In the face of long odds and many rejections, it is vital to remain upbeat. Here are some suggestions:
- Team up: find another entrepreneur who is in the process of raising capital. Share war stories and information about investors. Make introductions for one another. Lend an ear.
- Measure progress in a form other than dollars raised. Create a simple model where you can mark progress on each potential investor from introduction, to first meeting, second meeting, due diligence, to funding. Seeing things move on the scoreboard will help.
- Make yourself accountable to someone you admire. Get a mentor and schedule regular calls. It’s always harder to give in when you have to admit as much to someone you respect.
- Set goals and write them down. Beyond just a fundraising goal, write down how many investors you want to meet each week.
Understand why you got rejected
With a game plan and a support mechanism in place, it will be much easier to positively process rejection. You may be relieved to find out that sometimes it actually isn’t rejection as much as it is circumstance. The fund may not have money, may focus on another industry or another deal stage, or it may just be holding remaining funds for follow-on investment. Regardless of circumstance, there is still an opportunity to get feedback. Your job is to make it as easy as possible for the VC. A few ideas:
- Find comparable companies in the portfolio and ask the VC how she got comfortable with a challenge that both your company and that company face.
- Share a milestone that you have in mind to prove that you can and will overcome a primary concern and ask if reaching that milestone might alley their fears.
- Invite candor: “We came to you because of your reputation for building great companies in our industry—your feedback would mean a great deal to us.”
Ask for help
Many of us approach conversations with potential investors with one purpose: to get money. This approach is foolishly short-sighted. Many VC’s are business savvy and well connected. Regardless of whether or not a VC is going to give you money, she can give you advice and introductions. The list of help you can ask for is limitless, but some examples include:
- Introductions to good talent or brand name advisors
- Suggestions regarding funds or angels that may be interested
- Business development leads
- Introductions to related companies in their portfolio
When the conversation is winding down, establish a point for re-engagement. It is best to have the VC set the parameters for such a conversation, as this will provide insight into her thinking and increase your odds of actually getting a follow up meeting.
Make yourself useful
VC firms need lots of help. They are often thinly staffed, short on research tools and time. You can gain big points by making yourself useful. For example, a VC will appreciate it tremendously if you introduce her to a compelling new company (that fits her fund’s strategy), provide industry perspective for her due diligence, introduce her to a great lawyer, the leader of an entrepreneurial organization, a pioneering professor, etc.
Helping a VC is a means by which to work with her before she actually funds you. You can demonstrate passion, competence, and the power of your network. Most importantly, there is no better way to establish a foundation for a relationship that may just last for years.
Every entrepreneur will hear the dreaded phrase: “No, I will not fund your company.” The real question is: what will you do to walk out of the room in a better position than you were when you came? Hopefully you will use some of the suggestions above. At the least, I hope you realize that there is opportunity in every rejection.
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