One of the worst parts of fundraising is a lack of feedback from potential investors. Fundraising is hard, and as I've said before, closing your raise is even harder. If you add in the silent treatment, things couldn't get much worse. Potential investors drag their feet. They hate saying "no" so they try to say "no" gently. Or they say nothing. And entrepreneurs hate that.
Here is how to deal with it.
When You Get a "No"
Investors who say "no" should actually be rewarded. That may not feel natural initially, but try to recognize that they're trying to help you. They're being honest and direct in a hard situation and haven't left you and your company in limbo. A "no" allows you to move on. You should thank them.
In Airbnb's earliest stages, it sold boxes of "Obama O's," generic Cheerios with an illustration of Obama on them, during conventions for $40 per box to fund its business. Today an "Obama O's" box sits in the office of Union Square Ventures, a top venture capital firm, as a subtle reminder of what they missed. If Airbnb's story tell us anything, it's that even the best get turned down.
In the event of a "no," be polite, thank the investor for their time and direct response, then inquire if they're open to providing feedback on why they declined or what they'd need to see to change their mind. If they seem open to staying in touch, this will help you narrow your search in future rounds and help you convert investors that are the right fit. Getting constructive feedback can also help you decide whether the terms you presented are fair and possibly guide you toward improved terms.
When You Get No Response
The unfortunate truth is that the vast majority of investors don't respond to pitches.
But when there is no response, that should tell savvy entrepreneurs something. Maybe you don't want to admit it to yourself, but if investors aren't responding, they're probably not interested. Don't chase them.
Instead, here's what you should do:
- Rethink your targets. Ask yourself if the same types of investors are passing you by. Are you focusing on the right types of investors? Are they active in your space? Are you talking to the right partners at the right firms?
- Edit your message. Are you sharing the key points in a clear and concise way? Are you framing your story to resonate with investors appropriately? If you're not sure, get help. Give your pitch to another entrepreneur that has done this successfully, or find a friendly investor and ask for feedback without asking for money.
- Rethink your terms. Are the terms of your deal fair? You may need to rethink your valuation and other key terms you're asking for. Not every company is meant to be a unicorn. You're more likely to get the deal done if you're realistic. Do some research on valuations in your industry and make sure you're using the right comparisons.
- Rethink your assets. What "assets" in your company do investors really need to see? Sometimes, inexperienced entrepreneurs in consumer and retail focus on patents, but the truth is, those don't matter that much anymore. Investors care about: historical financials; customers; brand strength; product differentiation; and your team, which includes management, current investors and advisors. You should have great things to say about most, and ideally all, of those points. That doesn't mean all need to be wildly positive. Every company has hair on it. But you should be able to explain those issues and your path to fixing them. If you don't, you may want to step back and get those assets in place before continuing to pitch to investors.
- Provide value back to the investor. This is an annoying email: "Hey, are you in?" When you reach out to investors, provide value (i.e., knowledge) with exciting updates about your company - new customer wins, how you're beating projections or word of a new product launch. Or give them news about the deal, like a great new investor or better valuation. If an investor originally expressed interest and then went dark, follow up with an update. Remember, you are responsible for driving toward a close.
Keep in mind, the odds are stacked against almost all young companies. Our Business Operations Associate Alex Kearns reminds entrepreneurs: "For every 100 investors you talk to at the early stage, you can expect to hear 'no' or nothing at all from 95-98. It's what the entrepreneur does with the 'no' or silence that often determines the outcome."
Like Airbnb, the overwhelming majority of VCs passed on Uber in its seed round. There was so little interest initially that Uber was giving "VIP Service" for life to investors willing to put in more than $10,000. The lesson? "No" and silence are just part of the fundraising process. But they are not reasons to give up. Instead, these responses--or lack of responses--should remind you to stay focused and realistic. You have work to do.