Raising capital for a startup is about the farthest thing from enjoyable that I can think of, and that is by design. The mathematics of the venture capital game dictate that investors have to spend 90 percent of their day saying no. Investors know it, entrepreneurs know it, and everyone has a sort of verbal contract that rejection is part of the game and taking it personally is a silly waste of your time.

However, saying no to entrepreneurs can be done in a way that not only doesn't offend anyone, but is constructive and leaves the team with some concrete lessons of how to do better next time.

The inspiration for this article came from a rejection letter a company I am advising received last week from an investor they were pitching. The names and details of the following email have been changed for privacy reasons and because the investor requested to remain anonymous:

"David, thanks for the chat yesterday and for sharing your deck.

I truly value the offer to invest in X, but I will pass for now.
You and the team have managed to build a remarkable service with very little resources. The numbers clearly prove that you bring value to service providers and your growth path is solid.

I liked your concept of "Y for services". It's definitely a pain as there is no real A tool that is focused on B. The only relevant company I found is C, but they're more focused on D...

At the same time, X 'calendar origins' still shows. So your current offering seem to be focused E. My intuition is that there's a much bigger opportunity in building a  catalog of F and targeting the G market...

I took the liberty and gave the team at my portfolio company that we discussed a heads up on your venture as a potential partner - so I guess you'll now be above the radar ;)

I am convinced that the great team from H  (another investor that is evaluating the deal) will manage to help you secure the additional funding you need.

Please feel free to keep me in the loop.

Good luck,


This email, while it was, at the end of the day, a rejection email, left the entrepreneur feeling like, in his words, a million bucks. It also left him with concrete ideas for how to improve the business and maybe make it more relevant for future investments.

The standard "I am going to pass. Come back when you have more traction" that most investors send, assuming they respond at all, but that is a topic for another time, is useless and insulting. Traction? How does an entrepreneur get traction with no money? How about you add one sentence to that email? "Come back when you have more traction and here are some tips on how to acquire that traction?" 

Listen, I realize you are seeing hundreds of startups and that writing a personalized email requires time and effort, but you know what? It is part of the job, to be decent to entrepreneurs. Don't forget that while they need you for your capital and hopefully assistance, you need them because, well, without deal flow, you don't have anywhere to deploy your capital and return your investors' money.

If you read that email again, and break it down, this investor did so much right with this message, it is worth dissecting. 

First of all, he starts off thanking the entrepreneur, meaning he understands that the investor/entrepreneur relationship is a two way street. He proves that with his second sentence in which he explains how he values the opportunity.

He then praises what the company has accomplished, which might seem trivial, but when a startup is getting endless rejections from all directions, a little positive reinforcement can go a long way.

This investor took it even further by praising the model and the potential market, and even showing how he spent the time and energy researching the competitive landscape.

He then went into real concrete detail of how he thinks this entrepreneur can enhance and improve his offering. Real tangible advice! He ended with "While this is a "No", I did put in a good word for you with one of my companies, so while you won't get money from me, maybe you will get a strategic deal." Legendary! 

Oh, and the final words that made this one of the greatest rejection emails I ever saw? "While I am not investing, perhaps it is worth exploring this other investor that could be relevant for you."

This email is the way every investor should communicate. It shows respect, it shows effort, it shows that this investor understands it is his job to work for the entrepreneur, and not, like many investors see it, the other way around.

Entrepreneurs, when raising capital, ask yourself the following question. Would the investor I am pitching right now write such an email? If not, think carefully if you want this person as your partner for the next better part of a decade.