When we pitched VCs for FlightCaster, we received 52 rejections before we got our first term sheet. Every time I got a rejection, I asked for feedback. Here’s what I heard:
Some VCs said our market was too small. But I found that odd in that travel was a global 500 billion dollar market and lots of other travel startups were receiving VC backing and presumably those VCs cared about market size as well.
Some VCs told us they weren’t experts in the travel sector and so they wouldn’t be a good match for us. But I found that odd because they are invested in all sorts of esoteric industries that they didn’t seem to be experts in either. And now years later, I’ve seen those same VCs invest in other travel startups.
Some VCs said, “We like you, but we need to do some more due diligence on the space.” Then they asked us for a bunch of hard-to-get stuff – market research, traction metrics, and better proof of growth. But even when we got them this information they still didn’t say yes.
Over the course of 52 rejections, I got tons of feedback on our startup.
I spent incredible amounts of time responding to that feedback. I’d like to think that all this work responding to feedback and iterating on our pitch made us better, but Sunil, the VC that we got our first term sheet from didn’t care about any of that. In fact, he didn’t even request it. As we were proceeding past the third meeting and I asked him if he wanted our due diligence pack that was filled with juicy market research data, growth metrics and industry overviews, Sunil responded quite easily, “I don’t need any of that. I’m betting on you.” We signed the term sheet and he became our lead investor.
I’ve been thinking about that raise recently. The big difference between Sunil and those other investors wasn’t that I had magically found a VC that was willing to take a bet on me instead of getting preoccupied with all these other due diligence items. The real insight is that all of those other VCs wanted to make a bet on me as well, they just decided not to. To say that another way, they didn’t invest in me because they didn’t believe in me. No other reason.
All of that concrete feedback about market size and traction and metrics. All of that was simply the nice feedback. It was so much easier to blame it on market size then to tell me to my face that I don’t have what it takes to be a successful founder. I’m actually quite sure that this is the case because several of those investors that rejected me for FlightCaster are now investors in 42floors. And now that I have talked to them about this, they’re willing to be frank with me.
Several of these investors put money into 42floors when we hadn’t figured out our product vision. I hadn’t done any of the market research yet and our deck still didn’t look any good. Several of them don’t even know that much about commercial real estate. There were tons of reasons not to invest in 42Floors. But they had seen me grow as a founder and they were now willing to bet on me as a founder. I do wish they had been more frank when they rejected me during FlightCaster because I wouldn’t have gone off on so many wild goose chases. But I can give them a pass on that because it’s incredibly hard to tell someone you don’t believe in them.
Paul Graham talks about this in his epic fundraising how to guide. He says, “if you’re getting a bunch of no’s it may just be investors don’t think you’re formidable.”
Here are a few tips to check yourself on whether you’re getting real feedback or the nice feedback.
How to Ignore the Nice Feedback
Get a great advisor
As I’ve said before, find a great startup advisor which specifically means a peer of yours that is twelve to eighteen months ahead of you. This is not an industry veteran. It’s not someone who sold their company for hundreds of millions of dollars. It is specifically someone who is good at playing the game that you’re playing, and they’re just a little bit ahead of you. Because they are the ones most likely to tell you frankly what’s going on.
Trust the feedback that repeats consistently
If you truly have some problems whether it be product vision or market size or whatever, it should be that really smart VCs will continue to see it. If your feedback feels contradictory, then you may be able to pass it off as noise and realize that you haven’t found a true signal.
Just because you ask for frank feedback, doesn’t mean you’ll get it
Some people are really good at requesting frank feedback and they ask for it specifically. And while that will sometimes works, often it still doesn’t. For most investors it is simply not worth the time and emotional effort to try to give really frank feedback. Realize that they say no 99% of the time, and so they consciously or subconsciously try to minimize the amount of effort it takes to say no.
Access a good back channel
If you’ve done your networking right, you hopefully know people in common with the investors you’re pitching. Hopefully one of them gave you your initial introduction maybe as either a peer in the startup community or better yet a personal friend. That’s the person you want to go to, to try and figure out what went wrong. Most investors will chat with whomever your reference was and all the true nuanced color about their decision will come out. You still may fall victim to getting nice feedback if your friend feels bad for you, but at least you have a better shot of getting it than trying to get it from the investor directly.
Finally, if you’re reading this and you have this sinking feeling in your gut that it applied to you, I can also say with great confidence that your career as an entrepreneur is not over. You simply need to become more formidable. I wish I had an answer on how you do that, but plenty before you have figured it out – and so can you.
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