A VC on saying "no" and the "courtesy-proof" firm

Technology trends and news by John Shinal
September 30, 2007 | last edited July 18, 2008 | Comments (1)
Short URL: http://vator.tv/n/62

Ouch! That's what entrepreneurs say every time they're told no by a VC. Now comes word that it's no fun on the other side of the table either. Saying no to aspiring entrepreneurs sometimes makes you feel like crap, according to venture capitalist and Sevin Rosen Fund partner Nick Sturiale.


(Wait, should I feel sympathy for a guy who made an early-stage investment in XenSource, which was bought in August by Citrix Systems for half a billion dollars?) Read on and decide.


In the third of our columns on the inner workings of Planet VC, as told in the words of those who work the surface of that Machiavellian world, Sturiale told us about vetting deals, taking meetings and delivering the hook:


"If a deal is referred by someone we know, that's a big screen for us. Nine out of ten deals that come over the transom, they’re not worth taking a meeting on."


As we walked down a street in sunny Palo Alto, Calif., across the Camino Real from Stanford University, Sturiale explained how funding someone means initiating a relationship with them. That means you better be real sure what you're getting into before you dive in. You've got to be able to trust someone you're about to hand a seven-figure check to, right?


Vator.tv: If you do take a meeting, how do you say no?


“You have to say it over and over and over -- you get tired of it. Doing a deal is like getting married. You do the first date, and you’ll say you liked it and that you’ll call back, then a week goes by and you feel crap because you haven’t. They’ll call you up and say they want another date, but you don’t (because the idea is not worth funding). There’s no easy way of saying that, but we have to.”


The above echoes what we heard from Roland Van der Meer, of ComVentures, in last week's Planet VC column. Read that post here.


For those thinking about pitching him at Sevin Rosen, Sturiale told us that right now he is looking to fund software startups with low-friction sales models that can get into the enterprise through the back door. Read that post here. 


Sturiale, who is a former executive of multiple enterprise software companies and has been a VC for seven years, then offered his best guess as to how the VC industry as a whole handles the process of saying no. 


“There’s a lot of self-deception among VCs about it. They’ll say they’re good at it, but 9 out of 10 entrepreneurs who deal with them will say they were a jerk.”


Lastly, Sturiale introduced us to a new phrase, the "courtesy-proof" firm.


“Some VCs are better at it (saying no) than others." Still others are “courtesy-proof,” he said, which I took to mean that they can dismiss entrepreneurs with no courtesy and still have good deals come to them.


Sturiale smiled when he said this, without saying which category applied to himself or his firm.


Entrepreneurs who have an opinion on this column should post a public comment on it. If you want to do it anonymously, contact me via Vator, and we'll talk.


David Saad
David Saad, on July 18, 2008

If you have a child or a pet, you should know the power of the word “NO”. More importantly the consequences depend on when and how you say “no”.

It shouldn’t be surprising to any VC that the great majority of entrepreneurs, at least the good ones, strongly prefer to promptly receive a rejection - a polite one, mind you - than to be left hanging, for the following reasons:
1. Entrepreneurs’ life is already full of uncertainties. They don’t need to deteriorate it by adding false hopes.

2. Entrepreneurs are already slaving away for about 16 hours per day, they don't need to waste their time chasing VCs who are not good prospects.

3. If their venture turns out to be not fundable, good entrepreneurs prefer to know about it sooner than later, so that they can move on instead of prolonging their misery. This rush to closure should not be interpreted as lack of tenacity but rather a recognition of the reality and evidence of their maturity.

From the VC viewpoint, a quick, but polite rejection along with preferably some feedback offers the following benefits to the VC:

1. Entrepreneurs, especially experienced ones, are likely to respect a VC who is a straight shooter, especially if the VC offers some feedback or provides some referrals to other VCs who could be prospects to entrepreneurs. After all, this business is all about relationships. VCs are likely to solidify their reputation within the entrepreneurs community by taking the high ground.

2. VCs don’t need more exasperation - they already have their current CEOs, the entrepreneurs whom they plan to fund, and their limited partners chasing them. They don’t need a whole bunch more aggressive people hassling them.

3. VCs cannot invest in every entrepreneur that they meet, even if the entrepreneur is nice and smart. A prompt explanation of this fact from a VC to the entrepreneur can cut all the possible hangovers caused by a prolonged rejection.

4. VCs are human - they don’t necessarily enjoy rejecting people. However, not liking to reject is not a good reason to procrastinate on the inevitable. It’s like euthanizing your pet – the sooner you do it, the better it is for you and your pet. It is actually quite fast, peaceful, and gentle.

Like every other profession, there are some great VCs, but there are also some real bad ones too. The short sighted VCs prefer to keep the entrepreneurs hanging, intentionally I might add, because of the following reasons:

1. They typically think that they have nothing to gain by closing the door, especially if they are not sure whether or not the venture will likely to get traction. Thus, by not responding, they falsely think that the door will remain open. The reality is that if the venture gains traction, they would be the last VCs that the entrepreneur would go back to because of their irresponsiveness.

2. They feel important by having entrepreneurs chasing them, and they take pleasure in snubbing entrepreneurs. It’s somewhat like teenage dating: “run after her, and she’ll run away from you, and vice versa, run away from her, and she’ll chase you”. Bad VCs take refuge in this false sense of power by having entrepreneurs chase them. In short, their ego gets in the way and pushes them towards bad work ethics.

In conclusion, we, entrepreneurs, do understand the difficulty and the pressure that VCs are under. It is not easy to raise a fund, select companies, and reject the great majority while working on exits. That’s tremendous amount of juggling. We actually wonder how you do it. So, we’re here to simplify your life – reject us quickly, but politely, because after all, rejection is still rejection, and it does hurt, even when it’s prompt.

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