The one-sentence e-mail turndown

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If you have pitched sent your proposal to VC's, you have probably received one of those:

Thanks Company X for sharing your proposal, this is not one for us, best of luck with the fundraising and stay in touch.  Best, VC Y

You are probably thinking, WTF.  After all, aren't VC's paid to look at pitches and business plans ?  Actually, we are not.  Here are reasons why I regularly write the above:

• If I won't invest in you, I can't spend time with you.  And before you ask, of course there are plenty of exceptions including some really naive entrepreneurs who I really like and spend time mentoring for no good reason, but I shouldn't be doing it, really.
• If I try to provide you with a smart and structured answer, it's going to take me 30 minutes I do not have. 
• If I try to provide summarized feedback, you will either take offense or think I am really dumb.  Here is one example of heroic summarisation:
  • Value chain dynamics too complex
  • Can't see how this scales given revenue model and the above
  • Does not feel like a large enough opportunity for the type of fund we have (or similarly evasive comment)

I used to call people systematically because I thought this was more polite -- let's just say it was a bad idea.

The Truth is, much of the time, I DON'T KNOW why I pass.  I just do pattern recognition and I pass, fast.  Example: average looking team - tough market - financials don't look ambitious - product replicable --> pass.  Time spent: 3 minutes and 12 seconds including writing the mail.  I hear you thinking it's not fair, after all you poured your heart and soul in that business ... and I know that.  Why do I do so ?  Because filtering effectively is a survival skill in my business. 

That is why you need ... intros.

Comments

[Erik]

I'll take a one line turndown over 3 months of "maybe" any days.

[Mark Littlewood]

Good VCs say, 'No' fast and early.

Bad VCs say, 'Yes' fast and then start thinking or negotiating and end up saying no after sucking up 3 month's of an entrepreneur's time.

[FredericBaud]

Fred, thank you for telling the things just as they are. It is fair to understand that VCs are financiers: their art is to put the money where it can get the best returns.

VCs should also be transparent when they pitch entrepreneurs that they will be adding value beyond money. Apart from the financial discipline, it's not their job either. They have a better return looking for the next potential big deal than trying adding industrial value in a business that entrepreneurs know much better.

[twitter.com/hug_h]

In fact you should reply via Twitter : everyone is used now to receive very shot answer, and for someone that launch a startup a personnalied 140 or less answer is better than no answer or a standard sentence.

[Fred Destin]

@FredericBaud: I agree that entrepreneurs know their business best; that does not mean they cannot use advice or another pair of eyes. As for value-add, it is variable (and guess what the best entrepreneurs need less of it) but I have seen and participated in examples in my career where we end up stronger with good collaboration between investors and team. I think that is a core part of my job and in terms of time allocation probably represents 75% of what I do. I think this is true of many of the VCs (and angels and NEDs) that I work with

BTW I also plead guilty to sometimes dropping the ball to saying "no" fast, which is one of the factors that really annoys entrepreneurs, and rightly so... We just try to keep our SLA's up !

[FredericBaud]

@Fred just posted on "Are you giving equity to your VC to get their advice?" http://bit.ly/DTQEC

The whole question turns around: There are free advice and there are key advice. While the two are not mutually exclusive, key advice are those you should really be ready to pay for.

I really think you're pushing things forward by discussing openly and transparently what VCs are and are not.

[twitter.com/13marcin]

About intros: I was really surprised when one of the VCs I met recently said - let us get to know you before you pitch us. At first I thought 'like you really care' but Seedcamp Week thought me (among other things) why teams are so important and why VCs invest in people. If they know you, and you're credible to them the approach to your idea is completely different (in one direction or the other ;)
Bottom line - don't pitch to strangers if you don't want a on-line-reply.

[Fred Destin]

@FredericBaud
A worthy discussion.

I think incentives are more aligned than this for a simple reason: VCs invest with an investment thesis (e.g. in 5 years this company will be generating €xxMM in revenues and €YYmm in EBIT and will be a leader in its new segment) and to get there ... one needs to build a business. So for many years, until the investment thesis has either been proven or invalidated, there will be a strong natural incentive to keep working hard to help the business make progress towards that goal. Why ? Because we do not exist without (a) exits and returns and (b) company building stories that help us attract new entrepreneurs.

There are reasons why VCs don't perform as entrepreneurs might expect them to, but I don't think misaligned incentives on advice are the key driving factor.

[Elie Kochman]

You call a spade a spade, nothing wrong with that. While a one sentence explanation might be useful to the entrepreneur, it must be understood that if you spend 5 minutes on each proposal vying for your attention, that would double the time spent on things you aren't interested in. At the end of the day, you need to prioritize your own time just like the rest of us.

[FredericBaud]

@Fred the key question is: Do VC firms invest on the belief that the project might be generating €xxMM in revenues and €YYmm in EBIT in 5 years - with or without them? If this is the case, then they are making a pure financial investment, and the help they might be ending providing are just margin calls to cover unanticipated outcomes (that are numerous, but my point is elsewhere).

If the VC firm is actually bringing industrial value to the project, then - like any other company - it should structure its value proposition and contractualize the return it should receive in exchange of this unique service.

My point is that when an entrepreneur buys smart money with equity, she should know how much she's paying for the money and how much she's paying for smartness, and have a way to monitor her return on each.

[Fred Destin]

I don't think this distinction works. The role of the board member is both a role of monitoring and control (making sure that the company is run in accordance with the social contract and legal contract between the parties ) and in working with other board members to do what the board should do (primarily define strategy). Note that generally the function of the board is defined as "manage the business in the best interest of the shareholders". there is a body of work around this including from Brad Feld that I worth reading. See this old but great article:
http://www.feld.com/wp/archives/2004/07/boards-that-are-not-bored.html
and more at
http://www.feld.com/blog/archives/board_of_directors/

[FredericBaud]

@Fred totally agree with you!

The role of VCs is to behave as active investors in the position they are given as board members and does not cover helping entrepreneurs building their business - which would require a different contractual agreement (which was my point). So entrepreneurs should fully realize that they are exchanging equities for a financial participation and that they should wisely pick the VCs that will act as their board members - sometimes a passive investor is better than the wrong active one.

As a minor note, I don't think the strategy has to be defined by the board: It is defined by the CEO and validated by the board - a subtle but important difference.

Now, let me fully agree with you again: a strong board is a precious asset for a startup and I would single out a specific Brad Feld's post "VC Behavior in Board Meetings" http://bit.ly/OUbi1

[Alex]

wow, this is so revealing... I would've never thought it would be like this. I always thought VCs were like major record labels, listening each of the band demos with the love of a parent and the attention of the surgeon.

[Jeff]

Thanks. I'm living this right now. Sometimes the hardest thing is to stay positive.