I’ve spent a considerable amount of time playing angel investor over the years which has given me the chance to meet many great entrepreneurs. In general, when an entrepreneur contacts me, he/she is looking for money, advice or both. Generally speaking, I make a quick determination if the people are some that I might be interested in working with; whether or not the idea is something that I can actually add some value too; and, oh yeah, whether or not I can make any money by investing in it, if that’s appropriate. More often than not, the discussion ends with me declining to invest, at least at that time. As we discuss in The Startup Playbook, that’s what happens most of the time, an investor rejection. Why? Because there are a zillion startups with great teams and great ideas looking for money, but not an infinite amount of money or number of investors. No’s happen way more often than yes’s.
But, what comes next is the most interesting part. How the entrepreneur handles the investor rejection is telling and really determines whether I’ll consider an investment in the future and/or recommend it to others.
About a third of the time, I immediately say no, because the company’s business model or team doesn’t match up with any of my basic criteria. The other two thirds of the time, I spend more time with the entrepreneur to understand the business as best I can and as quickly as possible. After over 70 angel investments, I should be able to determine the value of a startup quickly, yet, it doesn’t actually seem to be getting any easier. Or, at least, I’m not getting any better at it. Of course, the amount of time I spend coming up to speed with the team depends on my interest and varies quite a lot. In the end, the vast majority of people I talk with ultimately get a no. That’s just how the numbers work out. I can’t invest in everything.
In almost all cases – there are those who take a no like I said their mother is ugly and are complete assholes about the situation – I do my best to be supportive and helpful in my investor rejection, explain why I’m not interested and almost always try to connect the entrepreneur up with someone who might be better equipped to help or might be interested in investing. But, it’s still an investor rejection and it’s tough to take. It’s in how the entrepreneur handles this situation, that I learn more about them than during any of the previous discussions.
Once in a great while, someone will hang up on me or clumsily end a face-to-face meeting with some poor excuse. More likely and if email has been the primary form of communication, I might never get a response to my rejection, which is also a non-response to my offer to hook the entrepreneur up with another potential advisor or investors. Sometimes, the entrepreneur digs in his or her heals and pushes even harder, thinking that they can force me into changing my mind. Often, pleading, in various forms, takes place.
I’m here to tell you folks, this is all bad. If you’re an entrepreneur, you should treat each relationship you establish as a long-term, important one. You just never know when you’re going to need it. Sometimes you need it and you don’t even know it – like when another investor calls for an opinion or a reference, which happens frequently. I don’t hold a grudge, but I’m not shy about sharing my thoughts about things, especially with people I have an established relationship with (there’s some recursion here, I think).
I’m making it sound like very few handle the situation well. Many actually do handle themselves wisely and professionally. What do I mean by this?
- They politely ask “why?” to fully understand my decision without trying to convince me otherwise
- They thank me for the time I spent with them and for my consideration of the team and idea
- They usually ask if I mind if they can engage me for advice or guidance in the future or if they can send updates on what is going on with their new baby.
Yes, for the most part, it’s political and maybe even pandering. It’s also smart. Some people handle it so well, I question my decision not to get involved. Handling it well gives me the impression that the entrepreneur might have the right stuff to be a great CEO. I’ll take that over a great idea any day (although both is nice, obviously). Even if I don’t get involved, that’s what I’m going to tell others when asked.
I’m not trying to be the Emily Post of startup venture engagements here. But handling this basic stuff right can get you far. There will be MANY more no’s in your future. They are always harder to handle than yes’s. If you can handle them well, you’ll demonstrate what you can do when things are not so good. A much more important skill than what to do when things are going well. And that’ll get around.
If you want to know more about the ins-and-outs of startup investment and financing, get a copy of The Startup Playbook. We cover all kinds of funding topics, including How Much Money Should I Look for in My Seed Round?