A VC investor’s advice on what to do next if you get a ‘no’ on your startup pitch

In part one of this series, Britt Boxall of Folklore shared how to go about your first interaction with a VC, building on the insights she’s gained from reviewing countless pitch decks and screening calls. In part two, Folklore’s Sachin Samarawickrama offers tactical guidance to founders who want to keep investors warm after an initial ‘no’.

When an athlete wins a championship, do we think about how many losses he had when he started? Better question, do we care?

Losing is inevitable, but how you bounce back is what people remember.

I’m well aware that I sound like a bootleg Rocky Balboa, but losses don’t just exist within the confines of a sports arena: Melanie Perkins threw more than 100 throws before receiving investment.

The experience of being told ‘no’ 100 times can’t be easy, but what’s even harder is keeping this up to build a company that I don’t even have to name to know about which company i got it.

As an investor, saying “no” is one of the worst parts of the job. Day in and day out, you meet incredible founders at all stages building great companies across industries, and sometimes their startups just don’t fit your company’s mandate or expertise.

For founders who spend an enormous amount of time building a company and putting together a pitch, this is undoubtedly one of the most frustrating experiences, and it would be understandable why a founder’s initial instinct might be to get defensive or discouraged. become.

Unfortunately, rejections are part of the capital raising process (and one of the biggest parts of a VC’s job). As bad as they are, they can also be a gift because they force you to go back to the drawing board and dig deeper into why that investor didn’t recognize the opportunity you think is there. After all, why should athletes look at playback images differently after a loss?

Understanding the rationale behind a VC firm’s investment decisions (Britt recently shed some light on what we’re looking for, in case you missed it) and what you can glean from investor feedback can help you effectively navigate the rejection process and reap your investment at the end of the road.

Understanding the ‘no’

‘No’ does not exist in a vacuum, it’s important to peel back the layers and understand what really drives this reasoning – in most cases a ‘no’ is not personal and should not be received as such. Easier said than done, but keep in mind that VCs look at thousands of companies each year and end up saying nothing Yes’ a handful of times.

At Folklore, for example, we are deliberately focused in our approach – we see an investment as a 10-year journey with our founders (which perhaps starts with just a pitch deck and an idea). That’s a long time to work together, so we want to make sure we’re confident in every investment we make. And if we don’t feel like we’re right for each other, we try to leave you with more than a ‘no’; we want to provide constructive feedback for you to implement.

There are several reasons why a potential investor might say “no,” and I would broadly divide them into two categories. The first relates to the fund’s strategy, which may not match the startup’s search for capital. This could be because the startup is outside the fund’s mandate, the fund has reached its investment limit, you are not in a target sector, or perhaps there is now too much exposure to your sector. While this is largely out of anyone’s control, founders shouldn’t write off these investors completely. These companies are constantly looking for new funds (possibly with different investment criteria). Use the discussion to open the door for future conversations.

The second reason has to do with the profile of the startup itself. Perhaps the VC has expressed concerns about competing in a saturated market or your product is not defensible. You can turn that feedback around to find out what the investor is really looking for:

  • “Company is in a saturated market”
    Do you know your competitors inside out? Have you articulated the real opportunity?
  • “Your product is not differentiated”
    Have you effectively communicated what makes your product different? How are you 10x better than your nearest competitor?
  • “The product is not defensible”
    What is special about your team and your insight that makes your product resilient and unique to a customer?
  • “You can’t bind your customers”
    Does your product actually deliver functionality and usability that a customer cannot live without?
  • “Unclear value proposition”
    Do you have insight into the pain points of your target group and whether your product is a must-to-have versus a nice-to-have?

This ultimately works both ways. You need to be clear about what you do and what your product aims to achieve, but investors also need to ask the right questions when they meet you so they can make an informed decision. If they aren’t – and you feel like they don’t understand your business – then you probably aren’t the right fit for each other.

A blessing in disguise

While getting a ‘no’ can be daunting, finding the right partner is crucial to a long-lasting, successful partnership that can span more than a decade. In most cases, a ‘no’ is the best outcome, because you avoid a mismatch.

As a founder, make a call on which investors are worthwhile to invest your time and energy. Think about your experience with that investor so far: Has it been valuable? Have they shown genuine interest? Are they thoughtful in their approach? Again, investing is a two-way street and investors have as much to gain from you as from them – take the time to figure out which ones you want on your dressing table, and therefore which ones you need to be proactive about.

Keep investors warm

There’s a fine line between keeping someone up to date and spamming them, but I think the most important thing is to show that you’re persevering. A regular email update for those who choose it can be a great way to stay top-of-mind with investors as they share progress, discuss challenges and celebrate wins. As far as it’s welcome, you can even schedule a catch-up meeting without an agenda to keep up to date with the state of play.

However you communicate, it’s important to show that you’ve taken feedback to heart. Before we go any further, I would like to emphasize the importance of figuring out what feedback is worth take on board – not everything is useful. Every investor will be looking for something different, so making your business more attractive to one person risks making it less attractive to another. With each piece of feedback, ask yourself, “Is this productive, does it make sense, and does it help me build?” Mine company?’

Once you’ve determined the core areas you want to focus on, this is a great opportunity to show that investor how you both address their concerns and do what’s right for the company. to build investor confidence. Sending updates every time you hit a milestone, such as product improvements or signing a pilot customer, may not immediately result in a 180 change, but over time you paint an incremental picture for the investor that you are succeeding.

Has this ever worked? Absolute. In 2020, Folklore first met Aiden Roberts and Will Pamment as they presented their vision to build a healthcare data integration layer called Dymaxion Technologies. Dymaxion was too premature as an idea and despite the pleasure of meeting the team, neither Folklore nor the founders were very convinced about building the product. But Aiden and Will kept in touch and they approached us again with a new company, SimConversea simulation platform to mimic healthcare education with AI – and we have invested in 2022.

You never know what might result from maintaining a good relationship with an investor: objective feedback, an introduction to another VC who might be a better fit (never underestimate the power of referrals), or an investment in the future. Keep these investors warm, even if they passed you at the start.

Dealing with a “no” can be challenging, but I hope you’re well placed to understand not only why they happen, but how to put your focus on potentially changing someone’s mind (when it makes sense). Every ‘no’ gets you that much closer to a ‘yes’ – remember it only takes one.

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