4 useful pieces of information for early stage investors to include when saying ‘No’ to funding a company
As early stage investors, there is much we can do to help startup founders succeed.
Sometimes this involves welcoming them into our portfolio with an investment into the company. For most funds this can only happen for 1% of the companies we meet.
So what about the rest?
There are few truly bad startups. We are probably saying ‘No’ because there is not a fit with our firm. We should make the time spent together as valuable as possible whether or not this happens.
When I am unable to invest, I try to include the following information to help the founder get to the next step.
It takes an extra 5 minutes and can lead to valuable outcomes.
#1 — Suggest at least 3 other people they should speak to
Most investors are hyper-connected with vast networks of other investors, customers, scientists, service providers and talent.
Who can help this company? Who would love to learn more about what they are doing?
#2 — Describe openly what your team discussed before getting to ‘No’
Help the founder understand why you said no. A good way to do this is to describe how the debate played out in your team and what factors dragged the answer away from ‘Yes’.
This provides an opportunity for the founder to come to their own view on the perceived weaknesses and improve the proposition going forward.
Sometimes, founders will reply that we have misunderstood their business.
Try to have the debate in case you have.
#3 — Be honest about if you could ever be an investor
Often, investors end an email with “Please keep us in the loop…” or “We’re happy to look again at your next financing…” but are you really or is this company never going to fit your fund? If that is the case, say so.
If there is a genuine interest in staying in touch, be very clear about what evidence you would like to see to potentially change the outcome.
#4 — Are you open to helping in other ways?
How else can you help going forward? Is it OK for the founder to reach out to you from time to time with questions and ideas? Can you involve them in events and discussions? Can you explore partnerships with your portfolio companies?
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Leave them with the next step. Not in a hole. Leave them with hope and enthusiasm to carry on.
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To the founders I have collaborated with, if I don’t behave this way — call me out. It is important to me.
I will collect my thoughts for early stage investors working with founders here.
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