Years ago, Joe Torre (when still managing the Yankees and long before his Dodger tenure) wrote an article for Business Week (Joe Torre on Winning) that’s worth reading. One of the lines in the article pretty much sums up one of the hardest things for Angels to do and something that happens on a regular basis: “I have had to release guys I loved, and keep players I didn’t necessarily care for.”
In the world of startup investing, Angels invariably come across a lot of great entrepreneurs that they get to know on a personal level and think the world of. Unfortunately they sometimes have to say “no” to these individuals because they aren’t completely comfortable with the company’s market space and/or technology. Conversely there are company founders that drive us crazy, where we ended up investing in their companies because we knew the venture had a very high likelihood of success. What also makes saying no particularly tough is knowing that many of these entrepreneurs have leveraged themselves to the hilt through credit cards and second mortgages and have given up well-paying jobs to pursue their dreams.
Historically 1-1.5% of all applications submitted to the Pasadena Angels get funded. Realistically—and with a finite amount of time and investment dollars—our group can do a maximum of 12-15 investments each year. In our world that unfortunately means saying no to many entrepreneurs.
As you work with Angel groups (and also VCs), there are three pieces of advice related to this topic worth considering. Since fundraising can be a real (but necessary) time commitment with a substantial opportunity cost, focus on getting a quick yes/no from prospective investors. Even if the answer is no, you’re way better off getting a quick answer and not consuming time with those that are not likely to invest.
Secondly, look at how the group says no to evaluate them as investors. Although this won’t make a lot of sense at the time you’re rejected, it’s worth doing since you may have another venture in the future where they’d potentially invest. For reputable investors, the experience should be constructive, positive and polite.
Lastly Bill Burnham, a former VC, has a series of great (albeit somewhat dated) posts on The Art of Saying “No” and goes into considerable detail about the process and some of the unsavory tactics used by VCs. In one of his posts, Bill summarizes the four reactions he typically gets from entrepreneurs when hearing “no.” The best advice I can share is always make sure your reaction is #4– “Thanks, this has been helpful. Let’s talk if we raise another round.”