Saying No to Teams We Like
One of the worst parts of investing in early stage companies is saying no. A lot. We say no more than 100 times for every 1 yes.
Since our investment philosophy is people first, some assume that people are our only filter. They believe yes means we like the team and no means we don’t like the team. But that’s not the case. We also need to have conviction about the business and market plus of course need to be comfortable with the deal structure. As a result, there are many times when we say no even though we like the team a lot. That’s not fun for the team, or for us.
So why do we bother to give a clear no? Why not simply hang around on the sidelines with a maybe? Especially since it’s probably better for us, just in case the deal becomes hot and we can jump in at the last second.
Because that’s not fair to the team. We hear too many stories of investors playing games with entrepreneurs, resulting in wasted time. In addition to being fair with time allocation, we also try to be clear with feedback and give specifics of why we are saying no. If we have done serious work on the opportunity, by definition it means that we have been impressed by the team, and so we try to make this feedback useful for them. Once again, too many investors give a one line no, without any context for the decision.
Although there are no short term benefits for saying no clearly, we strongly believe that there are long term benefits for us by taking this approach. Great teams appreciate clear feedback, good or bad. When teams are doing due diligence on us, they inevitably speak to others who have received a no from us and how we act in these situations is a reflection of our overall approach. Great teams are smart enough to appreciate the connection.
So, even though it’s no fun for anyone, we will continue to say no a lot. Even to teams we like. Knowing that it’s the right thing to do for them and for us.