Mailchimp Subscription

The Value of Getting to NO Fast with Startup Investors

November 27, 2018

 

You’ve poured your heart and soul into your startup, and now you are trying to convince a potential investor to pour some capital into your startup too. While it may sound counterintuitive, having that investor say NO to you as soon as possible will help you in the long run. It’s actually a philosophy many successful entrepreneurs follow when they are seeking out new investors.

During the GIST TechConnect discussion How Startup Investment Works, a panel of expert entrepreneurs and venture capitalists explained why entrepreneurs should get to NO fast with potential investors. The reason, the panel explained, is because rejection actually helps an entrepreneur save time in order to find the right investor. The panel also said rejection provides a valuable learning opportunity for entrepreneurs.

“If it’s not a fit, it’s not a fit,” said Elizabeth Gore, president and co-founder of Hello Alice. “If folks across the room aren’t passionate about what you’re doing, if they don’t understand it, it doesn’t mean you’re wrong – but that it’s not the right money for you.”

Reflecting on her own experience, Gore talked about her own efforts raising capital for Hello Alice. She said of the more than 160 investors she pitched her startup to, only seven said yes – the rest told her no. In hindsight, Gore said she should have accepted the rejection and spent more of her time pitching to investors who were more likely to give her startup money.

Entrepreneurs also need to understand that rejection from an investor is not a challenge that needs to be overcome, but rather an outcome that needs to be accepted.

Clare Fairfield, chairman of the Venture Capital Institute, said founders should not fool themselves into thinking they can convince an investors to change their mind and invest.

“If a firm tells you, ‘this really isn’t what we do,’ but they’re still willing to meet with you, that’s probably a waste of everybody’s time,” explained Fairfield. “They’re being polite, but you will probably not be the exception that gets an investor to move outside of their lane.”

It’s not all bad news though. Rejection is a great opportunity to learn something about the way that you are approaching your investors or if you are even approaching the right investors. Gore said in her own experience, they looked at all the different rejection responses they received for patterns that could help them perfect and improve their strategy. Using NO to help her company improve their fundraising strategy helped secure better funding in the long-run, Gore said.

“Listening to those NOs is as important as the process around yes,” said Gore.

Rosemary French, senior program manager for product development at the Cancer Prevention and Research Institute of Texas, said investors also like to see entrepreneurs who have turned their rejection into learning opportunities. She said for an investor, this demonstrates a level of maturity and understanding that shows an entrepreneur will use their capital wisely.

“Failure is actually a positive in this business, it’s looked at as experience,” said French. “You have a CEO standing up there pitching, saying ‘I startup three companies and lost all the investors’ money. But then on my fourth company I had this big exit.’ Those are the ideas that investors pay attention to, more so than that first idea. Because they know that the CEO will learn from those mistakes and build on them.”

So as you set out to look for investors, remember that rejection can help you save time, energy and teach you a thing or two about what you are doing. And don’t’ lose hope, as the panelists explained, NO doesn’t necessarily mean you have a bad startup – it just means you need to keep looking for the right investor.

 

You can get more insights about investments for startups, including the different types of investments you should be seeking out for your startup, by clicking here to view the full TechConnect.