There's a great post over at Marc Andreesson's blog. It tries to help entrepreneurs understand why VC's say no, and how to interpret their responses. Marc points out that it's not uncommon to be being turned down due to the investor's view of the management team- but pretty exceptional, if they ever, that they tell you!
Why VC's wont tell you about a management "issue"The analogy used by Marc and others is that telling someone their startup is no good is like telling the founder that their "baby is ugly". I'm not quite sure what the analogy is for when we have to let them know that we don't think they themselves are not right for their role! I've certainly always tried to find ways to be as honest as possible, but frankly it's tough, in particular because when you do tell them:
- They just put it down to the the VC being an idiot anyway and carry on regardless.
- After the first few words, no matter how you dress it up, they stop listening and you never get a second chance to explain.
- It gets translated into all sorts of random reasons when the entrepreneur relays the story to others- when I gave the bad news to one entrepreneur he relayed it to everyone as we "weren't interested in high risk ventures"- I've no idea where that had come from!
An anecdote about giving honest feedbackI remember early in my investing meeting an interesting firm run by a very bright and young software guy and his mate. The team was supplemented by a the father of one of the founders who had a successful track record in an early stage company. We visited and explored the possibilities with them, but somewhat awkwardly we rated the two young founders highly, but had lots of issues with the dad! Being a somewhat blunt northern type, I had the cheek to suggest that maybe the company would be better off without the dad, but with a new CEO instead (the dad was pushing his son to be CEO when the body language suggested he was much happier as CTO). We heard from them again about 4 years later, looking again to raise money!
How to tell what the VC really thinks...Here's a few tips (please add any more in the comments)
- Benchmark first
Ask around to find out what experience/track record other management who did raise funding had already. If it's your first time in a startup, or first time in a C-level post then it'll need checking especially hard.
- Aim low
This is the hardest perhaps, but if you're in any doubt put the person in as interim CEO for instance, if the VC's happy they might still suggest there's no need for a change.
- Look for indirect feedback
Perhaps your chairman, non-exec, existing investor etc. could make a phone call, maybe a few days later. We're only human and it's a lot easier to give honest feedback indirectly!
- Look for consistency
If you get inconsistent responses from the VC then maybe there's something else behind their decision.
Something about human nature perhaps, but a question is a great way to find out!