Last week we discussed how no matter how intriguing your startup is to an investor, they may still decline to get involved or look further at your company simply because it’s not a fit for them. While it is important to understand that different investors have different needs and motivations, it is equally important for both parties to know how to correctly take the next step and handle the rejection in the right way.
Foundry Group investor Brad Feld recently wrote an article for Entrepreneur Magazine in which he explains that when he turns down an email pitch, the worst thing the would be entrepreneur can do is ask for a referral. The interesting thing to note here is that Feld actually wrote about this very same topic on his blog back in 2007, so obviously, it’s still an issue he is seeing three years on.
“In networking seminars, classes and sales conferences around the world, people are told some version of ‘if you get rejected by someone, ask them for a referral’,” writes Feld. “This has never worked for me when dating. (After being rejected, I don’t recall saying, ‘I know you aren’t interested in me, but do you have any friends that are?’) I’ve never really understood why people think this works in a business context.”
As Feld articulates in his posts on the matter, the venture capital community is a close-knit group that places a high amount of trust in one another; by asking an investor to refer you to another VC, you are effectively asking them to endorse you. “Good VCs are careful with introductions because they want to make sure both parties view the introduction as valuable,” says Feld.
And just as entrepreneurs need to know how to take rejection, VCs need to know how to dole out that rejection. Feld was originally prompted to write on the subject back in 2007 when Fred Wilson wrote a piece titled, “Saying No.” According to Wilson, honestly is the best practice when it comes to turning down pitches.
“I’ve tried every way to say no and my belief is the truth, no holds barred, is the best approach,” writes Wilson. “If you don’t think the entrepreneur can run the business, tell them that. If you think the market is too small, tell them that. If you think the competition is too tough, tell them that.”
Not all VCs take the time to respond to every single one of the hundreds of pitches they receive on a monthly basis, but for those who do, they should try to inject as much honesty into their reply as possible. For the entrepreneurs on the other side of the table, take your rejection for what it is, and don’t push back for a referral.
Remember to not take rejection personally, the whole “It’s not you, it’s me” mantra is actually true in some investor rejections. And don’t forget to look on the bright side of rejection, as Bijan Sabet suggests. Sabet says that had he not been turned down for his first job application, he may not have found himself where he his today, both professionally with becoming an investor, and personally with meeting his wife.