One of the less exciting tasks of a VC is to reject a startup that applied for funding. The large majority of all startups that apply for venture capital do not receive funding, I would say well north of 95 percent. As such, most VCs spend a significant amount of their time on rejections.
By Jan Andriessen
One thing almost all entrepreneurs have in common is that the company they started is their baby, their way to realizing their dreams, and probably much more. Essentially telling someone immensely passionate that you have doubts about his or her object of affection, rejection often seem to lead to disappointment and other negative emotions.
Yet I do not think it should be perceived as painful per se if we start looking at the opportunities beyond the most typical VC–startup relationship.
The typical VC-startup relationship – as most people see it – is one where the startup receives money and expertise, and the VC receives an equity stake in return. You could compare this very intense type of relationship to marriage and the discussions and negotiations that lead to it to the process of dating.
Following this analogy I could say that in my personal life I need a more diverse range of social interactions and relationships than just the one with my wife (girlfriend). I have the same thoughts on the possibility of having different relationships between startups and VCs. Yet in my experience, when I reject a startup’s funding proposal, the three most common types of responses leave room for only one type of relationship besides the marriage equivalent. The three most common types of reply:
- Startup whom I will not grant funding only wants to talk about funding and will spend time trying to change my mind after I indicate there is no fit;
- After rejection startup wants me to coach their firm, essentially asking me to spend many hours without making clear what would be the benefit to me;
- Startup just gives up and never contacts me again.
There are different kinds of love beyond marriage and pure altruism
The only additional relationship beyond the VC-startup marriage that I detect in the above implies that a VC becomes a charitable altruist who donates his or her time and expertise for nothing in return. I disagree that these can be the only two alternatives and believe there are different kinds of love beyond marriage and pure altruism. I would personally love to spend time on entrepreneurs who need help with:
- Introductions to other investors with whom you would have a better fit (if your firm is there yet);
- Advice on which metrics and key elements of your business to build (if you still need to develop your startup a bit);
- Relevant introductions to (non-finance) people who understand your market/type of business;
- Acquiring any insights on a particular vertical that I might have.
In return, I would expect an entrepreneur to occasionally help me with:
- Acquiring market knowledge: as a good entrepreneur you have much more sector-specific knowledge than I;
- Acquiring connections: introduce me to good fellow entrepreneurs/employees (with the number of portfolio companies VCs have we are always looking for good people);
- Event picking: make me aware of interesting events within your particular vertical that would enable me to meet interesting people and enhance my understanding of the space;
- Deal sourcing: introductions to startups that would fit my fund’s investment strategy.
If you would like to form a relationship with a VC that stretches beyond marriage or altruism, then grab the opportunity. Turn rejection into something constructive after you have talked about funding but there is no fit. Or just send me an email at firstname.lastname@example.org. I cannot marry all of you, but I have plenty of love to share!
Jan Andriessen is associate partner at Dutch VC HenQ. This blog originally appeared on VEECEE.co.
Photo: still wanderer @ Flickr