What to Do When a VC Says No
You have the concept. You have the passion. You have the team. You even have a meeting lined up with your dream VC. So what do you do when a VC rejects you — multiple times?
I learned this lesson from personal experience. Here’s my story.
Mike Maples, Jr. is the managing partner of Floodgate. Mike is a master at transforming startups into $100 million companies. His angel investments have included Twitter and Digg, and he took his own startup, Motive, Inc., from an idea to a publicly-traded $75 million business.
Mike, one of Silicon Valley’s pre-eminent VCs, promptly rejected my company Egnyte during our first attempt at getting funding.
And on our second trip to Mike’s office, another rejection.
The third time should have been a charm, but he rejected us then, too. Only on our fourth attempt did Mike decide to fund us — a $1 million seed round, twice what he usually offers startups.
We’d persisted our way to “yes.” But persistence doesn’t exist in a vacuum. You have to understand its driving forces in order to have enough clarity to make it happen. Three key lessons can be learned from my experiences with Mike Maples, Jr.
Persistence is defined as “the quality that allows someone to continue doing something … even though it is difficult or opposed by other people.” It always has a motivational root, something that matters more than the suffering brought on by the pursuit of the goal.
It’s easy to grow discouraged in the face of rejection, especially when it’s your first time pitching VCs. You want to come back to the table motivated, driven, and fresh, and the best way to do that is to examine your deeper sense of purpose.
I was motivated to build a large, sustainable company and bring it to a successful exit. This motivation is not built solely on my own financial gain. It is crucial to me that I spread wealth to my employees and to people needing medical resources in India. Everything I do to build Egnyte is as a representation of a community of people — for the benefit of many. It’s more than my own success at stake. It is the health and wellness of others. Considering myself the spearhead of something greater bolsters confidence and resiliency needed to take the hardest, but most rewarding path.
Key takeaway: If you know the root of your motivation, you’ll gain the confidence to come back, not out of spite or in fear, but, rather, to be driven by a larger purpose.
2. Take aim and don’t waiver
Experience taught me this, but you don’t have to learn it the hard way! I had dealt with investors/VCs in a previous company, and had no desire to rely on angels. I wanted to go to a very early stage investor, or a super angel — rather than a mixture 8-10 angels and VCs. That can be extremely painful. Too many oars in the water can spin you in circles, diluting the purpose of your company because too many interests are involved. I knew we wanted to raise a small round, and this precluded taking investments from a lot of VCs.
I learned about Mike Maples through a friend, and saw what kind of investments he was backing. Mike was still a rising star, and appeared to be running a non-standard VC. These things all appealed to me, and I wanted to convince him to give me an entire $1M round to start the company. (His typical investments were $500,000.)
I wanted to go big with Egnyte, and I knew Mike was the person who could take us there. Do your research, and be firm in persevering what it takes to meet your goals.
Key takeaway: Once you know who and what you want, don’t settle for second best. If it takes more time and energy to get your ideal investor to work with you, do it.
3. Understand the nature of rejection (don’t take it personally)
You need to be emotionally prepared. This wasn’t my first startup, so I was braced for rejection and for not getting my way immediately. You need to expect this, and to not take it personally. Business is business. There’s rarely such a thing as overnight success.
In my previous startup, we raised Series A, Series B, and had the usual share of not-interesting-enough ideas as well as the usual pushback. This experience had prepared me to some extent. There was none of the personal angst (“Why did you reject me? Why can’t you see my point of view?”) that can plague entrepreneurs looking for funding for the first time. Rejection of your point of view isn’t a rejection of your product.
Listen as much as you talk. Your VCs will tell you how to overcome the very objections they’re raising. Mike gave us very pointed critiques; for example, he wanted to see a specific amount of new customers, or he wanted product usability improved.
We reached out only when we had done exactly what he requested. That only happened every six months or so.
We were serious about improving, and treated Mike’s time with great respect. Whenever we wanted a new meeting — once or twice a year — we’d send Mike a three-point agenda. If he agreed to the meeting, all four founders wouldn’t come and swamp him. Three of us at most would visit, and we’d present him with the exact eight-page presentation we’d promised in our email brief, never taking more than 45 minutes. The process was slow, but because we were careful to respect his time, and we only got in touch when we’d made the suggested improvements, Mike knew we were sincere.
Key takeaway: Rejections aren’t a personal insult. They’re an opportunity.
While angels may live in the sky, angel investors don’t drop from there. Know what you’re going into before you start running around looking for funding. Pick your perfect investors. Make your case. Make it strongly. Listen to feedback, and make your case even better.
And then, make it happen.
*The original post appeared in VentureBeat.
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