A frequent (and often legitimate) complaint by entrepeneurs about VCs is that we rarely say “no” to a particular investment opportunity clearly and quickly. There are a variety of reasons (both good & bad) for this which I’ll delve into momentarily. But there are also ways for entrepreneurs to read the “body language” of VCs and understand if a particular investor is giving them a de facto “no”.
- Initial skepticism isn’t always well-founded –> it’s good for VC’s to try to keep an open mind
- Things change very rapidly in seed and early-stage companies –> a key hire, technical or product milestone, or customer win can dramatically change the nature and trajectory of a particular startup within a matter of wks or months. This is why VC’s sometimes give a “no, but…” response, i.e. no given the current reality, but if something changes materially the VC’s opinion may honestly be pretty different.
The somewhat more selfish or at least internal reasons why VC’s don’t always say no in an easily understandable way:
- From a purely machiavellian standpoint, it’s in a VC’s best interests to retain “optionality” –> if one isn’t pushed to make a decision, one will likely try to reserve the right to push the decision into the future
- Individual VCs usually can’t make unilateral commitments –> every firm is unique in terms of decision making processes and organizational dynamics. Even if a particular partner is enthusiastic about a deal, they usually have to go through some type of process to gauge the level of interest amongst some/all of the other members of the firm. So it may take some time for a VC to get a clear sense of yes or no from a firmwide perspective.
- Need to prioritize –> at any given moment, a VC is likely to be looking at a handful of new investment opportunities in addition to responsibilities with existing portfolio companies, firm administration, etc. It’s not always obvious from a 1st or 2nd meeting how a VC should triage the range of deals they’re looking at.