COVID-19 Venture

You Got Rejected By A VC, Now What?

Written by Itay Sagie who is a lecturer and strategic adviser to startups/investors. He is also co-founder of VCforU.com, which helps over 17,000 startups with their investor one-pager while hundreds of investors use the platform for deal flow. Sagie is also the Israeli adviser at Allied Advisers, a boutique investment bank from the Silicon Valley. You can connect with him on LinkedIn and follow him on Twitter at @itaysagie.

As entrepreneurs, we often face rejection.

We are rejected by potential customers not yet ready for our innovation, strategic partners who prefer to wait until Q2 next year, and investors who say we’re too early or too late for them. In the COVID-19 days, getting a positive response from anyone seems like an impossible mission.

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The first time I got rejected from a venture capitalist was in the summer of 2008, when I was about to graduate as a biotech engineer. At the time, my co-founder and I filed for a provisional patent for what we thought would be a revolutionary, “failproof” medical device to treat hypertension. We figured, “Who wouldn’t throw money at it?” Well, apparently nobody would. Every single investor said we were both very genuine, but not fundable. My friend and I did not understand what had gone wrong.

Twelve years later, both my friend and I have pivoted our careers from biotech research to business, entrepreneurship and coincidentally (or not) into the investment community. We did not end up raising the capital, and I have made many mistakes along the way, but the one thing we both did well was to keep in touch with many of the investors we met in our process.

These VC connections led to future investments by the same VCs that rejected us, and led to other collaborations years later. Looking back, I understand why we were rejected. Putting aside the commercial readiness, and lack of understanding of what early-stage investors really care about, entrepreneurs today need to handle rejection gracefully.

Some entrepreneurs I have encountered take rejection the wrong way, either ignoring the investor, or worse, taking personal offense and even lashing out at the investor. While your feelings may be hurt, the way you handle yourself during and after VC meetings says a lot to an investor about your potential success.

Entrepreneurs must understand that venture capitalists sometimes filter more than a thousand startups annually and can only invest in a handful. Therefore, by definition, their job is to say “No.”

Hence, you will likely be rejected by VCs multiple times. It is true that some investors could be more polite and respectful, however, the truth is they will most likely not be too emotionally sensitive to you and your venture.

How should you react after being rejected by a VC?

  1. After every meeting, and certainly if you are rejected, which could happen in person and more often via email, you should reply and thank them for taking the time to meet with you. Also affirm that you value their comments and that you reserve the right to update them periodically as your business grows. This type of attitude will go a long way with any investor and, in many cases, will leave the door open for future investment opportunities once your company matures commercially.
  2. Maintain a long-term relationship with all your VC contacts. As you promised earlier, make it a habit of keeping all your VC contacts updated on your progress. They may find you relevant down the road. Also, circumstances do change, and after a couple of years you might lead a new startup or they might work for another VC at which point the circumstances could be ripe for investment.
  3. Don’t fall in love with your idea. This last point is easier said than done. You need to understand that your startup is not your baby. As an entrepreneur you should assess your own startup in an objective way and put yourself in the shoes of the investor. Perhaps your startup is not, and will never be, fundable by a VC.

VCs require very high returns in a specific time frame that may not be relevant to your specific startup. Perhaps your market potential is simply too small, perhaps there is just not enough need or willingness to pay for your solution. Perhaps there is not enough M&A activity in your domain, or that company valuation compared with revenue is too low. If you learn to identify these truths yourself, you may save yourself years of hard work, money, sweat and tears. Perhaps you should seek alternative sources of capital or perhaps pivot your venture altogether.

Wrapup

In summary, do not take VC rejection personally. Keep your inherent entrepreneurial optimism alive and bring actual value to the market, and you will most likely get funded. I believe that good startups will get funded during any economic cycle, including during these COVID-19 days. Perhaps VCs are pickier, timelines may increase and round sizes may get smaller, but most of the investors and buyers will not back down from a good deal.

 

Illustration: Dom Guzman

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