Why VCs Really Reject Startups

itwbennett writes "Instead of simply not following up with startup proposals that he doesn't intend to pursue, venture capitalist Josh Breinlinger decided to change things up and not only hear every pitch request but respond with honest feedback. For those on the receiving end of that honest feedback, Breinlinger's silence may have been golden. It turns out that Breinlinger, and perhaps most VCs, reject your proposals because you lack experience and leadership skills and your team is weak. Would you rather hear the hard truth about why your startup didn't get funded or some vague dismissal?"

Comments

Hard truth

[Anonymous Coward]

You can't fix what you don't know.

Re:Hard truth

[Anonymous Brave Guy]

I suspect most would say this though... right up until they hear why their idea sucks. Then that person is, "just a cranky old hater trying to ruin my dreams".

Maybe so, but if my dream is going to be ruined, I'd rather it happened before my career and/or personal finances were ruined with it.

My immediate reaction to the original question, "Would you rather hear the hard truth about why your startup didn't get funded or some vague dismissal?", was that almost everyone who is ever going to succeed in business would want the hard truth, and a lot of people who were going to fail would think they knew better and didn't need to hear it.

Re:Hard truth

[SomePgmr]

I'm neither a successful VC or a gajillionaire start-up guy, but I hope I'd think of it like this...

If someone points out a problem with my idea and I immediately get defensive, it's probably a very serious problem.

If it's something I've heard more than once, I'm probably really screwed.

If they made a judgement based on my pitch and I think it's because they just don't understand, then I'm probably not good at communicating ideas and I'll probably fail at communicating the idea to the masses, too. That's a big weakness, just of a different variety.

If I think I've explained it well, in a way everyone would understand, their concerns are not problems, and it's a very workable idea... I'd ask myself how someone that evaluates these ideas for a (successful) living could be that, "stupid". More likely than not, an amateur like me is wrong, not the other guy. Work from there...

Re:Hard truth

[AlexOsadzinski]

Oh man, this is a hard one. I was a VC for almost 8 years, and made a point of giving feedback, because I'd done 6 startups before, and knew how frustrating fundraising can be. There's nothing worse than being turned down (or ignored) with a BS reason, because you can't learn from it.

If the reason was "I don't understand your space and so can't add value", or "We don't invest in companies at your stage" or "We already have a competitive company in this space", it went down ok with the entrepreneur(s). If it was "I don't have confidence in the market opportunity" or "I think that there's too much risk in your technology (this never applies to software, but often applies to new semiconductors, batteries, alternative energy and the like)", it sometimes annoyed the entrepreneurs.

But, if the reason was "You're not the right CEO", oh, boy, it usually went badly. The problem was, that was the most common reason.

Worst of all were the crazy people. #1 on the crazy list are the "lossless compression" types. Even taking them through the math that, of course, no compression scheme can reduce all arbitrary data sets (n bits can only represent 2^n different data sets) had no effect. They also tended to get the most annoyed when I turned them down. #2 was the astonishing number of entrepreneurs who would present business plans showing revenues over the next 4 years of $1M, $10M, $100M and $1B, with >95% profit in that 4th year. Telling them that they simply had no idea about how to run a business also went badly. You could invent matter transmission and not get that kind of profitability.

There's another reason that VCs don't always give feedback: they don't want to miss the deal if another VC decides to invest. Maybe that other VC sees something unique, or has a plan to replace the not-good CEO, or something else. VCs really hate it when they invest in a company and it all goes to hell, and they lose their investment. They hate it even more if they turn down a deal and someone else makes a fortune on it. Some of the more self-effacing (and hence more likeable) firms will post on their sites a list of the great companies that they turned down. A lot of people turned down Google and Facebook, for example.

I still think that the best way is to give honest feedback, without being offensive.

Re:Hard truth

[Surt]

Exactly. A VC is a person who got lucky, once. It doesn't qualify them to judge startups, but allows them to do so.

Re:Hard truth

[Anonymous Brave Guy]

Your benefit is the result of your action.

It is also a result of the opportunities you had.

Life might be a meritocracy if everyone started out with equal opportunities, but that obviously isn't even close to true.

Re:Hard truth

[DigMarx]

I remember when I thought things could be boiled down to a meaningless three-word sentence. Then I turned 6.

Toughen Up

[whisper_jeff]

Would you rather hear the hard truth about why your startup didn't get funded or some vague dismissal?

If you can't handle hearing the cold, hard truth then you are in the wrong line of business. Period.

Ideas are worthless

[Schezar]

Ideas are worthless. We have great ideas all the time (or at least, ideas we think are great). The value of a business proposal isn't in the idea, it's in the execution of the idea.

The most important things to a serious VC when it comes to a startup have almost nothing to do with the idea itself. You don't have to convince them of the idea: they've probably heard it before already. You're trying to convince them that YOU are the one to EXECUTE that idea, and that you can do it better than anyone else. If you can't, then the'll fund that other person instead.

When you approach a VC, the only thing you bring to the table is your ability to execute the plan you've proposed.