Jun 19 2008

After the no

Last month I wrote a post that tried to share the venture perspective of turning down a deal (see "Saying ‘no’ can be hear to do").  In that case I was referring to a specific deal that was particularly hard for me to turn down, although in the post I was trying to generalize to the many potential investments that we take a serious look at but don’t end up closing.  While there’s typically less anguish around it, saying "no" to deals is something that occurs with frequency inside any venture firm. The comments to this post got me thinking about the other side of the equation – specifically what should entrepreneurs who have built up a relationship with a VC over the course of a due diligence process do when that process ends in a "no". 

I have to tell you that I’m shocked by the failure rate of companies I’ve engaged with to stay in touch. I’m usually pretty direct when I’ve seen a potential investment that I like, but for one reason or another I’ve turned down the chance to invest.  While the vast majority of the time I’ll simply turn town the chance to invest (and try to give my full reasoning why), sometimes I’ll say something more like "please keep me updated on your progress," or "I’d really like to stay in touch," or "please put me on your ‘friends of xyz company’ mailing list so I can hear what you’re up to".  This isn’t a throw away comment and I don’t do it often – mostly for companies where I’d consider an investment in the future after the company has made more progress or where I had a personal affinity for the entrepreneur and I sincerely want to help them be successful, even if I didn’t feel I could do so as an investor.  I NEVER say this if I’m just searching for a nice thing to say (if you’ve learned nothing from this blog, I hope its that I’m direct in my interactions).  It’s a balancing act, I know – I don’t want to lead anyone one (as Gerald noted to me: how can you say "no" while a) protecting your reputation as an open minded deal maker, b)remaining open to appropriate future considerations, c) being honest concerning the reason or reasons that affect your decision making, d) respecting the cost of opportunity that all parties have bore to participate in the pre-deal exploratory process, and e) remaining empathetic in a healthy way while defending and protecting your interests and positions – not easy, but certainly what we strive for). 

So apologies if my disbelief seems vain, but if 25% of the companies I ask to stay in touch with me actually do, I’d be surprised.  They may feel that either I wasn’t sincere or its a waste of their time to bother with keeping me up to date, but I think that view is extremely shortsighted.  The friction of maintaining a "friends of my company" email list or one of "potential next round investors" or just "people I care to keep informed" is so low that it seems to me crazy not to do so.  The companies in the 25% group that do this well have figured out how to provide regular, informative, short and to the point updates that make me (and the rest of the group they are communicating to) feel that they are getting the inside scoop on the company.  Sometimes they ask for specific help. Sometimes they are just basic updates.  Always, I enjoy hearing what these companies are up to.