The hardest conversation for an early stage investor to have with a founder you have backed

Phil Morle
3 min readApr 11, 2022


The hardest conversation for an early stage investor happens when you choose not to follow on in a company you have invested in.

This great tension is rarely discussed but lies at the core of the founder/investor relationship. We both know that these moments of decision will come and it matters how we handle it.

My context — what it feels like

Don’t come to me if you want a cheque and then be left alone.

I am a high touch investor. I started as a founder and I know what it is like to raise money. The initial investment decision is a commitment to a 10 year collaboration to build a company.

Once that conviction has grown, deciding not to follow on is very very difficult.

The investor context

To be a good investor, we need to be able to do two things:

  • Invest early into the best companies but THEN,
  • Be very disciplined about how and who we follow on with

This way our capital is allocated to the strongest companies that will deliver the best returns to our LPs (our investors).

So deciding not to follow on is critical.

Reasons for not following on

Here are some reasons not to follow on, ordered by increasing difficulty of the decision.

  • Fund NEVER follows on. This is more common in smaller funds and angel investors. This needs to be transparent from Day 1. It still surprises me that some investors obfuscate this.
  • Fund depleted. We invest out of a single fund for a single portfolio. The day comes when there is no capital left. Needing follow on some years after an initial investment increases the possibility of this.
  • Can’t hold reserve. Venture funds hold a reserve list for companies that they expect to follow on with. If the return profile of this company is lower than other options in the portfolio then it will need to drop off. This is a reflection on the performance of the company.
  • Can’t convince investment committee. Investors share portfolio performance internally all the time. As much as we have personal. conviction, it may be clear to us that we will not convince the rest of the team.
  • Don’t believe in the company any more. Yuck. The hardest of all.

Principles for behaviour

  • Be honest every day. Make it part of the regular practice of the company to explore investor sentiment with you as a subject. Don’t leave it until the moment where it is all at stake.
  • Never use it as a gun to the head. Practice presenting this as your own opinion. If in a board meeting, be clear when you ‘put on your investor hat’ for a moment to provide that perspective. Never use it as leverage to get your own way as a director.
  • Don’t force the culture to hide weakness. If you don’t quickly recover from hard discussions it is easy to create a culture in the board room where founders don’t have difficult conversations because they know investors are in the room.

When the ‘No’ comes

  • Be explicit about signalling. How does it effect the company if you are not investing? What signal does it send to potential inbound investors if you are out? Agree what you will say.
  • Can you invest with your actions? If capital is not possible, will you still invest your time, network and enthusiasm? This can matter just as much. Don’t say you will and then fail to act. That is worse.
  • Do you need to leave the board? If you are a director, don’t poison the well. We’re not so smart and you might be wrong about the company. If you have lost conviction, leave them alone to prove you wrong.

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Phil Morle

Deep tech VC — Main Sequence Ventures. Ecosystem builder. Maker. Director. Startup Scientist.