50 Questions

50 Questions: How can I tell when a VC won’t invest when they aren’t saying ‘no’?

By January 18, 2012 February 8th, 2012 6 Comments

Fourtieth in a series of (almost) weekly posts by myself and Nicholas Lovell of Gamesbrief which answer the fifty questions you should ask before raising venture capital.  We expect the series to run for a year after which we will collate the posts into a book.  You can find the rationale behind the series here, and the list of questions here.  We welcome your comments on any and every aspect of what we are doing.


Venture capitalists are notorious for not telling companies when they won’t invest, and worse, being enthusiastic about the company and the prospects of a deal for an extended period and then simply going quiet. It is unfair on startups when VCs behave like this as it wastes time (an entrepreneur’s most precious resource) and makes it harder to know when a fundraising process is failing and the company should change tack. Giving up on a fundraising process too late can be fatal for a business if it then doesn’t have enough cash left to pursue a different strategy.

I work really hard to get a quick ‘no’ to startups if we aren’t going to get into a conversation, and once we are in a conversation I try to tell them immediately if our interest cools. It isn’t always possible though. In the next part of this post I’m going to explain the dynamics that can lead to the undesirable behaviour of not getting to ‘no’ quickly enough and then I will describe some of signs so that you can tell if it might be happening to you.

The biggest single reason why VCs are slow to say ‘no’ is that for any half decent company it is impossible to be sure that ‘no’ is the right answer. Most VCs are inundated with investment opportunities and the most important day to day decision is which one to dedicate time to and if there is more than one good opportunity then one gets de-prioritised without a significant amount of work or thought. If the entrepreneur of that company then calls up the VC to ask if they want to keep looking at the deal most VCs will not want to rule themselves out of that opportunity, and will look to keep the deal alive, although realistically at this point the chances of an investment being made are (usually) already slim.

Decision dynamics within partnerships can also lead to slow decisions. If a decision is finely balanced then despite the sponsoring partner being heavily pro the deal investment committee can sometimes turn it down very late in the day (note also that many of the best investments are those where the original decision was finely balanced). Equally, in the situation where an Associate likes a deal it can sometimes take them a week or two to get a partner to focus enough on the opportunity to either run with it or kill it.

Finally on the dynamics of slow ‘no’s, it is important to note that most entrepreneurs want investment from people who believe in them and their company, and if it comes to a situation where two firms are competing then the one who has shown the most belief generally has an advantage. VCs who express equivocation at any point can face an uphill battle getting back into the deal and therefore the incentive is to be fully enthusiastic right up to the point of saying no. If a sponsoring partner is currently prioritising another deal but thinks they might come back to your company(i.e. are too unsure to say ‘no’) they are likely to simply apologise for being busy rather than explain that you haven’t made the top of their list. Equally, if a partner loves your company but faces a split investment committee they will fear that if they are open about that fact you might go with a competitor who is simply being less transparent.

By now you have probably already thought of some of the signs that suggest a VC is heading towards a ‘no’ even if they aren’t saying it.

The first, and most obvious, is that they are slow to return calls and emails and to arrange meetings. A top priority deal gets close attention. I wouldn’t give up on a VC who is slow to respond though, whilst it tells you that they weren’t immediately excited and the chances of getting to ‘yes’ are receding, it may be they simply haven’t thought about your company enough yet, and when they do they will get excited.

Secondly, look to the body language rather than the words. If there is genuine excitement about your company you should be able to see it or feel it.

Thirdly, repeated requests for more information that don’t seem headed towards a conclusion can be a sign that there is too much unease about your deal within the partnership. If during partnership discussions there is concern about the sales forecast and a request for a pipeline analysis follows, and then the following week there is concern about the competition and a request for a breakdown on the competition follows it is very possible that the following week will see a new concern, and so on.

Finally, you should look to be building a trusting relationship with your sponsoring partner and ask them these questions directly. If the trusting relationship is not forthcoming, or the answers to your questions are evasive that will tell you a lot.

Reading back through this list of signs there is nothing terribly surprising here, and, on reflection, I think that when entrepreneurs go wrong it is because they don’t want to believe the signs rather than because they don’t see them. Giving up on the chance of a transformative event is something most people find hard, even when that chance is slim, or even very slim. When the alternative is unpalatable (e.g. slower growth, headcount reductions, or even going out of business) then giving up on a slim chance is even harder. The trick, of course, is to be ruthlessly honest about the chances of success and not hold on too long.

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