How Should VCs Say No – When It’s The Team?

One of the things I continue to struggle with as a VC is the unfortunate fact that I am in the business of saying "no" all the time.

Saying "no" in the context of how you invest your time is one thing – fellow VC blogger Brad Feld did a good blog post on this topic in the context of time management a few weeks ago as did Y-Combinator's Paul Graham.  But I really struggle with saying "no" to entrepreneurs.  Entrepreneurs pour their hearts, souls and dreams into their start-up ventures and to summarily dismiss them remains the hardest thing about the job.  One of my entrepreneur buddies asks me whenever I see him:  "So – did you crush any entrepreneurs' dreams today?"  Very funny.  Ha ha.

One of the reasons for this dynamic is that VCs are in the business of trying to see everything (i.e., learn about and meet with all the best deals out there) but do nearly nothing (i.e., invest in only one or two companies a year).  My blog post on this topic a year ago was a bit tongue in cheek (VCs and Deal Flow), but only a bit.

My dilemma becomes more acute when I try to explain why I am saying "no".  In particular, how do you say no when the reason for turning down the investment opportunity is the team?  It's easier to say no when you have concerns about the market, the business model or the price.  The entrepreneurial team is great, you would enjoy working with them, you think they are money-makers, but there's something in the general model that prevents you from pulling the trigger.  Those are the easy ones.

The hard ones are when you are saying no because of the team.  Successful start-ups typically follow Thomas Edison's genius formula:  10% inspiration (in start-up land, the vision or idea), 90% perspiration (in start-up land, the execution).  Whether you like the idea or not is irrelevant if you don't believe the team has the wherewithal to execute it successfully.  Sure, a team can evolve over time and new leaders can be brought in, but very few VCs invest behind teams they don't believe in.

One curmudgeonly VC I know used to say to entrepreneurs:  "I don't think is an opportunity that suits you." At Flybridge Capital, we try our best to be direct and honest in providing feedback to entrepreneurs to help them with their ventures and perhaps we should have the courage to give it to people between the eyes.  I'm just not sure this blunt feedback would pass the decency and respectfulness test.  After all, who am I to project such an unfair judgment based on a 45-60 minute meeting?  VCs need to "Blink" and make snap judgements after those 45-60 minutes in order to filter and prioritize how they spend their time, but why be mean about it?  So in the end, I often settle for a polite "it's just not a fit for us".  Is that the right approach?  Let me know what you think.  What's the meanest turn down you've ever received from a VC?


61 thoughts on “How Should VCs Say No – When It’s The Team?

  1. I don’t mind if a VC says no. Saves me time not to waste more time on that investment firm. However, I would be more curious to know what made them say no and what their thoughts were. It may be something I could think of.
    I do dislike the silent ones who don’t even bother to respond at all…


  2. Taking a bullet for the team is the most natural thing that a person could and should do. Aside from the experience build along the years as an investor there is always is always that “hunch” that that sometimes can be combined with subjectivity or weaknesses for certain fields or type of people. This is when the team comes “to the rescue” and provides that stability you need. The most frustrating part about it is that you will probably never know what could have happened, or even worse you hear a year later that someone else invested and it turned out to be a huge success.I guess that’s what democracy is all about. For all of you that get turned down politely visit 🙂


  3. Up front and blunt.
    Shortly followed by an offer to buy out the idea. (cash only eg NOT success based shares/options etc).
    If as a vc you have the balls to back your vision then you should have no issue offering them a decent cash amount that will convince the founders to hand over their startup so your own team can move it forward.
    ….. or is the issue really “with the team”?
    Dean Collins


  4. Jeff,
    I think a blunt response to the Entrepreneur is what is best for both the VC and to the entrepreneur. Without any doubt it also passes the tests of decency and respectfulness. Actually the constructive criticism can be used well by a smart entrepreneur who can work on making his team/plan better.
    If not anything it at least helps in building a good relationship.
    Btw this is an interesting line of discussion and I hope the other VC’s ask entrepreneurs for their opinions in such matters.


  5. If it’s the team I think you should say so.
    My last startup failed to make waves. It was the team. I think some of the investors that turned us down (before we got a small VC investment) did so because of the team.
    Only later did I learn via a third party that was one of the reasons at least one investor passed.
    But no-one told us that. We learned the hard way, after blowing through a lot of money and wasting a lot of time and energy.
    Please, please tell entrepreneurs if it’s the team – “guys, this is a pass from us, we just don’t think the team is right”. You can go into detail – experience, team dynamic, whatever.
    But sometimes it takes outside voice(s) to point out what you’d think would be obvious to a dysfunctional founding team 🙂
    And early stage team is still something that can be addressed – there’s always one founder (possibly two) that will take that and fix it, even if it means another founder gets a bruised ego.


  6. Definitely be straight up. Lean on the harsh side. The way to mitigate is to be constructively critical.
    “We’re going to say no because we feel your team lacks…..” or “Your team came off as too arrogant”
    The worst thing would be a white lie or something vague. There is nothing I can learn from that.


  7. Great post. I am sorry I am getting to it so late. As a first time entrepreneur who is beginning his foray into the world of outside investment, is there any reason that an entrepreneur should not re-approach a VC after they have corrected the issues that you might have seen in the first pitch? Of course, this is assuming that they can be corrected, and that there has been sufficient progress made since the first pitch.


  8. Jeff, the worst turndown is no information. Saying “this is just not for us” is not helpful because it’s general. In those cases, entrepreneurs fill in the blanks and decide that Flybridge is just an uninspired firm that doesn’t grasp the future — or that is too lazy to give the specific reasons for the “no”.
    Be honest! Getting direct and specific feedback from a VC is always helpful. You just need to say it respectully and be willing to support what you say with details. If you don’t like the team, tell the entrepreneur what specific behaviors bothered you. For instance, “Diane, I just don’t see anyone on the team who has the chops to compete in a market where none of you have experience”, or the like. The more examples the better.
    The inverse is also true. Lots of us entrepreneurs wonder how VCs decide that they LIKE a management team after one meeting — just because we are charming and articulate. 🙂 Specifics would help there too.


  9. As an entrepreneur seekng investment, I have received e-mails saying that we are not a fit for them. However, without the candid reasons, it just doesn’t work for me. It leaves me with little hope on what I should change on my business model – or does it have to do with something else? So basically, “not a fit” only makes us entrepreneurs more confused.
    Now with repsect to your question, I think the meanest response I heard from a VC is that they were tired of us responding to them (basically, they said we were not a fit so we asked why and tried to clarify i their answer didn’t seem to fully understand our concept), and so their final response was for us to never contact them ever again. Shocking, and all the more, very mean.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s