(This is a follow-up to yesterday’s post)
A couple of months ago, I met with a particular entrepreneur who was looking to raise capital for his startup. This guy acted particularly coy with me saying that he wasn’t sure we were the “right firm” or that I’d really “get” his business. Nevertheless, as he described his business to me I think he realized from my questions that A) I must have had some experience in the sector he was embarking on and B) I wasn’t the asshole VC that he assumed I was.
We embarked on an email dialogue. He told me that if we invested, some of the top local angels (he named 4 or 5 that I knew well) would invest as well. (Better make sure of that before you say it). Of course later I picked up the phone and called the folks he referenced. While they had nice things to say about him, none of them said they were considering investing. While this wasn’t a deal-breaker for me, it did raise a yellow flag.
I asked lots of questions and he had good responses. I really liked this guy. However I had a nagging feeling that I’d seen this movie before. We’d made an investment in a company trying to solve the same problem and watched the company break its pick (and spend an awful lot of money in the process) on the rock-pile that this entrepreneur was attempting to solve. Venture capital investing requires a good sense of pattern recognition and I couldn’t shake the feeling that while this guy seemed extremely bright, had great domain knowledge and could certainly be the guy to solve this problem, this was a “tough putt”. I simply didn’t have the courage to join the fight with him.
When I got back to the office, I talked to my partners about the opportunity and our conclusion was that while this approach was somewhat unique and this guy was smart enough to maybe pull it off, A) Drawing on our experience investing in the same sector and understanding the dynamics, we concluded that it would be more time and capital intensive than he perceived and B), the sector he was selling into has been hit particularly hard over the last year.
So in the spirit of respecting an entrepreneur’s time, I sent him a rather lengthy email explaining why we were passing, without bullshitting him. That was the last communication I had with him. He never responded. No email, no phone call, nothing.
For some VCs, that might be the preferred outcome. No painful conversation having to explain your decision, no awkward “re-negotiation”. But I really liked this guy and it bummed me out. Over the years, I’ve developed some terrific friendships with entrepreneurs that we’ve turned down and gone out of my way to help them. You see, the game is long. We know a lot of people and we refer folks all the time to startups in the region. Potential hires, potential customers, etc. Instead, now I kinda think this guy is a jerk.
Look, I’m not asking for a pity party here. This isn’t the end of the world. However, I didn’t go asking this guy to invest in his company. He asked for a meeting and I spent some time researching the oppty, talking to peers, talking to the local angel community. I invested my time in him. Maybe I’m old-fashioned but at least a “hey thanks for your time” is probably not too hard after I’ve invested at least a few hours in you.
Most importantly, the message here is that at least for me (and I know for my partners as well), I place great value in every single entrepreneurial relationship I create. I have great friendships with people I’ve said no to and I continue to go out of my way to help them whenever I can. I have an unfathomable amount of respect for entrepreneurs and the amazing things they do. Just because I conclude that we’re not going to invest in your business doesn’t mean that A) I’m an asshole B) I don’t “get it” or C) that we can’t be great friends and I’ll continue to try and be a resource for you.
Saying no sucks.