I think I am a very positive person. I grew up in rural Vermont, and my wife often describes me as an optimistic farm boy. I love innovation, and truly believe in the goodness of people and that the future will be better.

So why did I choose a profession that forces me to say “no” most of the time, and moreover, encourages me to give critical feedback to energetic entrepreneurs that often verges on crapping all over their innovative ideas?

Few venture capitalists would describe one of their main responsibilities as saying no, but in reality, it is. In 2012, I reckon I officially said no to entrepreneurs about 99.8% of the times that I was asked for money. That’s according to our internal deal log. So it doesn’t count the informal pitches at conferences, weddings, bar mitzvahs, soccer games and yes, sadly, even funerals, where I wafted an air-biscuit of rejection in the idea’s general direction. 

In saying no so often, I want to make sure I say it well, while also doing my job well. To me, there are two critical elements to this:

  1. Being right most of the time when I say no, and more importantly when I don’t
  2. Saying no in a way that shows due respect to the receiving party

First the easy part--being right. It’s been a while since I looked at my own antiportfolio, but suffice to say that I have made some spectacular mistakes over the years. At this point, I’d probably bookend my career with Akamai and MakerBot as my chief blunders.

Saying yes is harder than saying no, and for sure I have made a few mistakes here. Ultimately, venture capital is a game of numbers, and an investor’s performance--the right no’s and right yes’s--needs to solve positively, or he or she doesn’t get any more money to invest.

The harder part is saying no in a way that shows respect for the entrepreneur. The old way was to never really say no at all, for fear that the entrepreneur would become successful and hold the no against you, or would tell his or her friends bad things about you.

Since then, I have noticed two common strategies for delivering the “soft no:”

  • The phone-tag game, in which the investor never actually connects with the entrepreneur to deliver the news
  • The “Dorothy and the Wizard of Oz” game, in which the venture capitalist creates a set of unattainable milestones, and only agrees to fund the company after the milestones are somehow met

The rationale I have heard most often for avoiding a no is that it prevents a prolonged argument with the entrepreneur that could deteriorate and leave really hard feelings. I think this is baloney.

Personally, I feel that any entrepreneur who has the guts to present their idea, whether primordial or well-formed, is taking the ultimate risk in putting themselves out there and deserves open feedback. I strive to respond to every single business idea pitched to me--with honest reasons for saying no, if that’s the outcome. The feedback varies from the very light (“not a sector in which I am interested”), to a much more detailed and specific look at a particular business.

It gets trickier when I pass on an investment because of unambiguous and confirmed negative feedback about personnel, as this sort of information is generally given only with a guarantee of non-attribution. Providing meaningful feedback without betraying confidential sources is quite difficult, especially if one doesn’t really know the entrepreneur well.

And no one likes getting turned down.