In response to John Shinal's article entitled A VC on saying "no" and the "courtesy-proof" firm, I thought it might be helpful to, not expose, but re-expose some VCs to the art of rejection - assuming of course that any VC would have mastered it upon initiation, but could have forgotten it due to all the commotion caused by entrepreneurs.
If you have a child or a pet, you should know the power of the word "NO". More importantly, the consequences of this powerful word 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:
- Entrepreneurs' life is already full of uncertainties. They don't need to deteriorate it by adding false hopes.
- 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.
- 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 VCs' viewpoint, a quick, but polite rejection along with preferably some feedback offers the following benefits to VCs:
- 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.
- VCs don't need more exasperation - they already have the entrepreneurs whom they funded and those whom they plan to fund chasing them. They don't need additional bunch of aggressive people hassling them.
- VCs cannot invest in every entrepreneur that they meet, even if the entrepreneur is nice, smart, and promising. A prompt explanation of this fact from a VC to the entrepreneur can cut all the possible hangovers caused by a prolonged rejection.
- 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. From my personal experience, as painful as it is on the person, and it was very painful for me, it is actually quite fast, peaceful, and gentle for the pet.
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:
- 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 for them. 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.
- 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 and dealing with failed portfolio companies. That's tremendous amount of juggling. We actually wonder how you do it. So, let us simplify your life a bit - reject us quickly, but politely, because after all, rejection is still rejection, and it does hurt, even when it's prompt.
I have another take on the issue: I would actually question the judgment of VCs, and to me rejection from VCs (or their approval) does not mean everything from a business prospective.
In any business, the real expert should be the entrepreneur. If he is a good entrepreneur, then he will know where there is a need and how to fulfill this need. Rejection from VCs is not rejection from market, and therefore it is just the opinion of somebody who is not directly targeted or even involved in the business.
The mistake really is to look for a validation from these VCs when in the end it is the market that will decide.
So if you want feedback, you should go to customers and try to sell them what you have, figure what they will buy and you have a winner.
Approval from VCs is just as dangerous as rejection is meaningless:
- they will give you money (at a very high cost for you the entrepreneur), which will remove the incentive to test the idea against the market earlier rather than later. You will be able to spend 6 months or one year building a product or service, and then when you are done you will go look for customers. So you will have to get validation from the market after you have spend money rather than before, and if the market is somewhere else, you have wasted your time and money on the wrong solution.
Maybe this is why VCs will tell you that only one in ten of the businesses they invest in makes it big. The numbers work for them, but are way lower than the average success rate of a business in general.
Something to ponder upon I think.