Over the past 6 months, there are many founders who have received an email telling them that we are passing on the investment opportunity. Within that email, we also make it a point to include 3 reasons why we cannot invest in their startup.
Writing a rejection email with 3 reasons lets my team and I crystallize the debate of whether we want to continue to invest our time in evaluating a startup or pass on the opportunity and move on. If any team member proposes 3 reasons that the rest cannot refute, we do not consider the opportunity worth taking further.
This practice was put in place so that we didn’t get into the FOMO trap of looking at everything, keeping conversations live and refusing to reject anyone so that we could participate when the startup receives validation from another investor. I rue many such FOMO investments. I have learned the hard way that unless there is our own conviction behind an investment decision we are basically gambling, and we all know that when you’re gambling – the house always wins.
Secondly not deciding on a deal prolongs the time a deal remains in our pipeline making both individual and company KPIs look bad, puts unnecessary pressure on the team member looking after the deal to keep updating the founders on the progress and just leads to an overall sense of lethargy that comes from decision paralysis.
Secondly, as a salesperson, the most frustrating feeling isn’t to be rejected by a customer but to be chasing one that wouldn’t give you a definite yes or no but continue to string you along for days (sometimes months) with the carrot of maybe being interested. Almost always those sales did not fructify and if they did, the time I spent closing the sale wasn’t worth the reward. Getting a quick no was always less painful than the torture of not knowing. It’s almost like ripping off a band-aid – the quicker the better.
While I empathize with founders that a no hurts the ego (for a few moments), the 3 reasons we provide justify and explain why we decided to respond that way, helping the founder to understand what we (as the investor) were thinking. They can then either decide to move on and stop wasting their time chasing us for an investment or spend some time contemplating the changes we suggested, There have been cases when startups have made the necessary changes, come back to us and we reconsidered our decision!
My team and I do not think that we are any kind of ultimate authority for evaluating a business plan and deciding whether a startup is worth investing in or not. We simply know why WE would not invest in a startup and are unapologetic in letting the founders know that we are mere mortals making a decision with the following disclaimer:
“Please note, these are only recommendations and as venture capitalists, we are only required to be right 20% of the time to be amongst the top VCs in the world. We can be (and are) wrong 80% of the time in our investments, so please do not consider this as the final word for your business.”
Barring the odd founder who will find the time to write a 2-page long email rejecting our reasons for rejecting their start-up, the general response from founders and even people who refer start-ups to us has been very positive.
Would you prefer to know whether we are rejecting your start-up? Would you like to know why?