Founders need to be very picky about whom they accept advice from. While most people have good intentions, filtering feedback is an important skill. It’s tempting to want to dig into why someone passed on investing in your company but if someone decided not to work with you, move on quickly. Similar to passing on feedback from potential customers or customers who didn’t buy, someone who doesn’t know your product doesn’t know how to make it better. At least, they don’t know better than you.
Fundraising puts you in front of tons of investors who have heard hundreds, if not thousands, of company pitches. Ideally, you’re talking with experienced partners who have invested in multiple successful companies and know a thing or two about how to build a successful startup. So when they give you feedback on why they passed, intuitively, you want to listen. But don’t. Take the no, and ignore the why. It can be hard to wave off the feedback from investors when you have a perception that they know better than you. Founders often carry this perception because VCs allocate capital which gives them a significant degree of power. But it’s important to keep in mind that money and power do not equal correctness.
Many VC partners will talk to hundreds of companies in a year and invest in less than five. Just because an investor took a call or two does not mean they were ever seriously interested in you or your company. In reality, if they pass, they just don’t believe in you yet. Most likely, your pitch needs improvement. For example, if an investor is confused about your market, you probably didn’t explain it very well. Don’t mistake that confusion as a reason to reassess your market. The worst thing you can do is think you should pivot your business based on something an investor who didn’t invest recommended.
Investors are playing a long-term game. Even if they pass now, they may want the opportunity to invest in the future so they are going to be very careful about how they manage interactions with founders. The majority of people struggle to take constructive criticism without having an emotional reaction. If an investor is blunt with their feedback, they run the risk of tarnishing their relationship with the founder and may be passed over for future investment opportunities. If they anger a founder, that person may go talk to other founders and share their negative experience and suddenly the investor is being shut out of multiple investment opportunities.
Instead of giving real feedback, most investors will share non-controversial, generally accepted feedback to play it safe—something that the majority of people would agree with. For example, they may say something like “the market is too small” or “the market may not pan out how you think.” This may or may not reflect their true opinions. Even more specific feedback like “if the product would do XYZ instead” or “if you targeted this other market instead” should be ignored. The VC has no incentive to give you real feedback and is trying to come up with the least provocative reason to pass. Following advice in this situation could lead to a path that is completely wrong for your business.
Other excuses VCs tend to give are “it’s not you, it’s us” or “the business is too early or too late for us to invest right now.” These excuses are rarely true. The “it’s not you, it’s us” excuse is an age-old way to let someone down easily while avoiding sharing any details. Similarly, investors know the stage of your company when taking the call. Yet, blaming the stage of your company is the number one excuse they use simply because it gives them an easy out.