As a new venture capitalist, I’m still refining my approach but when I read an investor attesting “very seldom do VCs give you the real reasons for passing to keep good terms with you for future investment optionality” my eyebrows raised. At Homebrew we try to always give specific feedback when we pass on a deal. We do this out of respect for the founders and the time we’ve spent together – even if it’s just one meeting – but I’d hope this behavior brings us closer to the entrepreneur. A soft pass shouldn’t result in optionality; a clear, honest relationship should.
My POV was met with some public and backchannel comments – from entrepreneurs wondering whether we’d still give feedback if it was a founder issue, not a business plan concern; from a good friend and fellow VC sharing that he had wanted to take this approach too but was finding it difficult; and another entrepreneur suggesting VC feedback is worthless, just tell them “yes” or “no” and move on. Let me try to address these in reverse order….
1) VC Feedback is Worthless
One of the things I love about my job is learning from founders during pitches. They always know at least one thing I don’t, and often it’s much more than that. At the same time, I possess data that can be useful to them: I hear many more startup pitches than they do; I’ve probably seen variations of the same idea pitched by other people; because of my operational background, I have some experience relevant to their company building. For me to spend minimally 30 or 60 minutes with them and not reciprocate, after they’ve just passionately told me about what they’re spending 100 hours a week building, well, that seems wrong.
Here’s what I try to do: couch my feedback with the admission that they’re closer to their market and the problem they are solving. Let them know that I respect their ambition and passion. Then, as articulately as I can, give them feedback on the pitch, their hypotheses and some of the things they might want to keep in mind. And, most importantly, I say “I’d like to talk more,” “I don’t think this is right for us” or “it’s too early for us. here’s what we’d like to see happen first and I understand this means you may close the round without us.”
I’m not sure that I always do this as elegantly as I’d like. Maybe sometimes I’d be better off just saying “oh we love it but really too busy right now to go deeper. Let’s catch up again in a few weeks” (and I’m probably guilty of doing this a few times). But I just don’t believe Homebrew is going to be successful if we don’t stick to our personal true north: building the type of fund that WE would have wanted to take money from. If you’re a founder and you think investor feedback is worthless you’re (a) talking to the wrong VCs or (b) not getting all you can be out of the time spent fundraising.
2) Giving Feedback is Difficult
Yes it is. It takes time. It can sometimes be perceived as re-opening the conversation (note: often a “no” is no, and not an opportunity to objection handle). But I think it’s really important to stick to your principles – if giving feedback is a principle, do it. If it’s just a strategy, it’ll probably ring false anyway. I’ve decided that my approach probably won’t improve my standing with someone who has already decided they don’t like me, but that for those who do appreciate me, it’ll bring us closer.
3) But What If It’s Personal?
Let’s be honest – at seed stage 99% of the time it’s personal. You’re betting on team more than anything else. We’ve looked at 400+ opportunities over the last two quarters and in only one case did we get far enough to pass based on “amazing team but we hate the market.” I don’t equate passing because of team with “bad founders.” Everyone we meet with who is starting a company is already someone special. To try and build something which doesn’t yet exist takes guts, drives and skills that are not average. To reject the path of “get a job and hold on to it for as long as you can” – that’s awesome. So what are the types of “pass based on team” that we do and how does that feedback sound?
- Founders Not Mission-Driven: The “why” matters to us as much as the who, what and how. If I think the why is missing from a pitch, I might say “doesn’t resonate with us why this particular team is working on this problem and we really like to see mission-driven founders.”
- Founder Skill Match for Problem: Be upfront that we think there’s a hole in the team that we’d want to see filled via key hire or at least strong pipeline before we fund. I’ll very soon be able to show a real example of this where we led the funding round for a team after watching them bring on amazing talent during the fundraising process. Skill match might also be about level of experience/familiarity with the problem they’re trying to solve.
- Lack of Personal Connection with Founder: This is probably the trickiest but needs to be addressed. If there’s someone that I just don’t connect with during the fundraising process it would do both of us a disservice to try and work together. In these cases I say “we’re just not connecting and I don’t think it makes sense to work together.” It’s not that the founder did anything wrong per se. Equally so, the VC really really really needs to make sure their aren’t any unconscious biases at work. If they can’t seem to “connect” with founders from underrepresented groups, that’s their problem. Not just on a personal level, but they’re going to miss a lot of good investments. Similarly you don’t need to be best friends with all your founders. It’s not about can we bro out together, it’s about how each party reacts to feedback, to tough conversations, to the mutual commitment being made.
I’m a new VC with six investments so maybe my glass is half full and my view of the world is unreasonably rosy. But as a product leader, working for startups, angel investing/advising a bunch of founders, and just being a human being, I’ve always benefitted from and tried to contribute to, the exchange of feedback.
The only thing more dangerous than what is spoken is what goes unspoken.