Investor Rejections: How to Respond, What to Do Next
You have your pitch deck. You have your business plan. You have your team behind you. And you’re starting to receive meeting invitations from investors and VC firms. This is an exciting chapter in the growth of any new start-up, and a long list of meeting invitations can seem promising. But some of these meetings may not amount to much, and when investor rejection letters or emails start rolling your way, they may take some of the wind out of your fully-inflated sails.
Rejection never feels great, but hearing “no” sometimes is just a natural result of taking on any difficult project. If you put yourself out there and take risks, sometimes you get shut down. Otherwise you aren’t really risking anything.
The challenge lies in how you respond to these rejections and what you ultimately do with them. Make the right moves, and you’ll come away with lessons that can help you move forward. Even better, you’ll gain the information and feedback you need to turn rejections into agreements. Here are a few things to keep in mind.
Actually read the letters and emails.
Rejections hurt! So it’s easy to drop them into the trash or delete them without reading them carefully. In some difficult fields (like the arts) rejections often come with no explanation at all. But when investors reject a start-up, they sometimes provide useful feedback and information than company owners really want to hear. Listen and take this excess information to heart. Or at least read the letters and emails -- you can process them later.
Timing matters…and timing isn’t easy.
If your investors tell you they aren’t ready to back you just yet, read between the lines. This isn’t exactly a rejection; it’s just a rejection for now. Investors often rest their decision on critical claims like “you don’t have enough customers”, “you haven’t raised enough capital from other sources”, “the market isn’t ready for this product”, or “your team is too small.” There’s a key message hidden in these claims: “Keep building and come back to us later.”
Feedback can show you where to place your risk and invest your energy.
If you haven’t yet assembled a team because you aren’t sure what offers the best return on your investment, some pointed feedback can give you the direction and courage you need to start hiring. If your investors tell you “No, because you don’t have….(X)”, that means it might be wise to start putting some effort, energy and resources into X. This may mean changing your pricing model, changing your distribution format, hiring a data security expert, or just temporarily redirecting your focus away from investors and into building your customer base. Prior to your rejections, you may have been working in the dark, not sure exactly how to distribute risk or hedge your bets. A few rejections (even harsh ones) can shine a light and show you the way.
Don’t give up after your first round of meetings, even if these meetings don’t bring tangible results. Talk to your legal team, discuss the content of your rejections, and work together to choose a path forward.