Venture Capital firms say “no” more often than they say “yes” to entrepreneurs. Recent research shows entrepreneurs have a 1% chance of securing funding from a venture capitalist – even after being shortlisted for investment.
But rejection doesn’t have to be the end, and it is possible to walk away from disappointment while still making a positive impression. Venture Capitalist Dale W. Wood, founder and CEO of Dale Ventures, says failure can be a stepping stone toward a relationship that provides lasting value to both the investor and the entrepreneur.
An established hand in the venture capital industry, Wood himself has had his share of failures.
“I spent most of the 2000s ‘failing forward’ and accidentally discovering my next step,” he said.
It was his attitude that helped him to turn temporary setbacks into eventual success, he said, adding that he encourages all entrepreneurs to turn a “no” into a long term lesson.
“Whenever you fail at something, you need to find out what went right and wrong. Figure out how you will avoid failure next time, and set clear standards for your success,” Wood said.
Here are four ways to respond to rejection by a venture capitalist.
- Accept it. Rejections happen.
An entrepreneur’s most common mistake is assuming the rejection was personal. Often, the opposite is true.
Facing rejection is part of an entrepreneur’s job description. A venture capital firm is more likely to reject a pitch than to accept it, and founders need to understand that getting a “no” is just part of the process. By removing the emotional, personal response to criticism, entrepreneurs are more likely to move on quickly, improve, and try again somewhere else.
Entrepreneurs shouldn’t grow discouraged when up against failure, but instead use the opportunity to dig deep and find the motivation that transcends financial goals. Investors are looking for people with vision, and great leaders never limit their vision to personal success.
- Take the high road. Respond gracefully.
For a founder, a business is almost like their baby – unique and incredible. It’s natural to feel at odds with someone who doesn’t see the same value. But arrogance or rudeness can lead to more closed doors and challenges in the long run. By choosing a distasteful response, a venture capital firm’s doubts about company management are only reinforced. Instead, responding with humility and professional courtesy can earn a venture capitalist’s respect. The right attitude can leave a potential investor with a positive impression that astute entrepreneurs can later use as leverage.
For new business owners, having a plan for dealing with rejection might be best. Entrepreneurs should take the time to send a thank you note or email when they receive a response from a firm, even if it’s one refusing funding. Acknowledge their perspective even if they disagree, and thank them for their time.
- Ask for feedback.
Understanding the nature of the rejection can be valuable feedback. Investors may turn down entrepreneurs for various reasons, and it’s in the entrepreneur’s interest to know them.
Once an entrepreneur gets rejected, they will likely hesitate to continue communicating with the investor, but it’s one of the first things they should do. Knowing where they went wrong is the first step to improving an entrepreneur’s chances of securing funding.
The feedback, if forthcoming, can be invaluable. Entrepreneurs can find out whether it was their pitch or something deeper in their business that needs fixing before their next attempt, and ask what would have made an investor consider a partnership. That information can be used to appeal to a new investor, or to approach the same venture capitalist after improvement.
Even though criticism isn’t easy to accept, it does give entrepreneurs the chance to display their flexibility, humility, and willingness to go the extra mile to make their idea work. Being coachable is critical to investors across sectors.
- Improve your company. Improve your pitch.
Entrepreneurs should turn feedback into a to-do list. A venture capitalist’s time is valuable, and refusing to implement ideas or advice shows an unwillingness to learn. If an entrepreneur can achieve the business milestones that the potential investor laid out, it is a sure-shot way to impress them.
Whether it’s to reach a certain number of customers, increase revenue or cash flow, or return after product improvement – any progress is good progress. Even if the venture capitalist doesn’t fund the business, the entrepreneur will have come away with valuable mentorship.
A No Isn’t Forever.
Dale W. Wood explains that a positive personal impression is one of the most important factors in securing funding. The most critical factor for venture capitalists when deciding whether to provide financing is if they can work with the company founder or management team.
Investors can choose to buy in at different stages of growth, and just because a venture capitalist turns down an entrepreneur now doesn’t mean they won’t show interest in the future. It’s common for venture capitalists to fund a Series A round for businesses they turned down for seed funding, or contribute to Series B rounds for people they said “no” to in Series A.
The safest and most logical thing entrepreneurs can do is keep all bridges intact – things can change with time.
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