VCs say no a lot–it’s just part of the job. But sometimes a “we’ll pass” can be converted into a “let’s check back in later.” Here’s what four investors say it takes to change their minds after initially declining to back a company.
Hit The Milestones You Said You Would
“Progress on key milestones is the No. 1 way for me to change my no to yes answer, particularly when the CEO says what she’s going to do and then does it,” says Rachel Sheinbein, venture partner at Lemnos. “I don’t say no or yes usually in the first meeting, either,” she adds. “In the actual meeting, my tendency is to decide on a deal early, but I try to counter my brain’s normal M.O. by listening and not deciding.”
As long as a pitch doesn’t include any “total disqualifiers,” Sheinbein tries to keep an open mind. If a company isn’t ready for funding quite yet, she makes a conscious effort to not write it off for good. Founders who clearly share what they’re hoping to accomplish in the months ahead can always go back to investors to remind them of those goalposts after surpassing them.
Show Market Traction
There are other ways to change VCs’ minds than just meeting your own objectives, says Ben Joffe, partner at SOSV, all of which all relate in some way to risk reduction or rising potential. “So it’s rarely about what you said but more about what you did,” he notes. “For instance: Now your prototype works, you found early customers, you have a new amazing cofounder or team member.”
“The only case where it’s ‘only words’,” Joffe continues, “would be if you made a significant change to your strategy with the same product–but even that would have much more impact if you went to validate it with potential customers.” In other words, VCs have a few different ways to assess a company’s market traction. “Other ‘external’ things could be that a technology is trending (‘let’s call ourselves AI or blockchain’), or there have been notable acquisitions in the space,” Joffe explains. “As Yoda said to Luke, ‘Difficult to see, always in motion is the future.'”
Build The Relationship
“Most relationships between VCs and entrepreneurs develop organically over a long period of time,” says Nan Li, partner at Obvious Ventures. Getting to yes is certainly about a startup’s business model, but it’s also a question of diligent relationship building across a long series of interactions, from “including conference events, informal catchups, email updates, and, of course, pitch meetings,” Li explains.
“It’s important to be thinking about this full timeline as the opportunity to convince the investor, instead of focusing on the few pitch meetings that you will have together,” he says. It can be as simple as just sharing regular updates. “Focus on key priorities in your business and show meaningful progress each time you update the investor. These updates will serve as multiple points on a graph, to reinforce the upward trajectory of your business and lead the VC to invest.”
Tell VCs When Things Change Fast (For The Better)
Antoine Nivard, principal at iNovia Capital, shares a story about how a no turned quickly into a yes in just 60 days. “I recently said no to a startup that had developed research on a very promising technological breakthrough in machine learning but was essentially pre-product, had no customer interest whatsoever, and had a part-time CEO still working for the acquirer of his previous startup,” he recalls. “That was a very easy no.”
“What I didn’t anticipate was that in two months’ time, they would somehow manage to ship early prototypes of the product, sign two multi-hundred-dollar POCs [proofs of concept], and have the CEO let go of his job–and [as a result] six months’ worth of unvested stock to focus full-time on this new opportunity,” says Nivard. “I thought it would take them at least six months to put all these pieces together.”
So should your fortunes improve quickly, don’t hesitate to follow up just as quickly–even after a clear rejection–to communicate what’s different now, and the sense of urgency. VCs always want to strike when the iron is hot. “That became a very quick yes,” Nivard says of the startup that clued him into its recent series of breakneck changes, “and we’re announcing the investment in a few weeks.”
“As VCs,” he adds, “we see a company at a given point in time, and it is very hard sometimes to evaluate a team’s ability to operate at high velocity.”