“You told me that you were going to introduce me to these people!”

This founder was screaming at me over the phone.

At the flip of a switch, the founder moved from speaking casually with me to Level 10 intensity. Literally screaming at me.

I was taken a back, I remember feeling stunned. Is this actually happening?

Context

Over the last five years, Tundra Angels has had to pass on hundreds of founders. We've invested in 22 companies.

As a former startup founder myself, every time an investor passed on my startup, I felt a sting.

But now as an investor, I’m on the delivery end of passing on startups. So I feel it from a different angle. But even for me, it’s never fun. (See my article on “The Hardest Part of My Job as a VC”)

Investors are intermittently in evaluation mode, depending on when a given startup’s fundraise is open or closed. Generally speaking, there are defined time windows for evaluation.

But investors are continually taking in data points - regardless of whether or not a fundraise is active or not. Data points on the company, on the founders, from any source.

In this article, I’m going to reflect on a very subtle moment in the fundraising process that is a much more important and revealing data point than founders realize.

The moment is - what founders do next after they don’t get the news they wanted to hear.

The scenario I have in mind is what happens next after an investor communicates a pass decision to a founder via email.

The reaction I receive from a startup founder after a pass decision typically breaks down to three categories:

1. Jerky behavior

2. No response at all

3. Response

I’m going to go through each one in this article.

The big “a ha” here is that founders probably have no idea that the moment after an investor communicates a pass decision sends a disproportionately memorable signal to the investor.

See, even when founders receive news from investors that you don’t want to hear, there is a big opportunity.  

Investors does not exist in isolation. They are networked to many investors that may be good candidates for your company. If an startup isn’t a fit for that investor, they may be a fit for someone else in that investor’s network. Or, even if they aren’t, they may come back to that same investor again for funding and that relationship needs to be strong.

In short, founders should always be keeping their investor options open.  

The type of the three responses above keeps that door of opportunity open, or shuts the door and the key is thrown away. Let’s dive in.

Jerky Behavior

This is the far minority of cases. But nevertheless, it happens on occasion. When it does happen, it always surprises me.

There was a startup that I spoke to once and had an intro call. The startup was in a specific space where Tundra Angels didn’t have a ton of experience, but I was connected to strategics and investors that did know that space very well.

After a conversation with the co-founders, I found that they were on the search for a lead investor. The startup was interesting enough to me from a market insight perspective that I offered up a very big connection for them. “I know a strategic investor in this space that could be very helpful to you and potentially lead your round.” I asked for a deck and a summary to forward along to my investor contact, asking if they wanted to be connected with this startup. The co-founders were very appreciative of this.

The investor replied that the stage of the company was too early, yet offered to connect them with someone that ran an accelerator in the space to help companies at that stage help them gain traction, make connections, etc.

It sounded like a big win for the startup, so I happily made the respective intro among the parties. I was really satisfied with the outcome.

Several days later, I got this email from the startup founder.

Founder: “Just got off my call with Thomas, and needless to say it was disappointing. 

In the future, I would prefer my company’s deck not be floated to organizations trying to sell boot camps and consultations. I'm looking for actual investors. Not companies trying to get me on the hook for several thousand dollar to tell me "whether or not I'm investable". 

Again, I appreciate the thought and your time. I just wish that today I hadn't wasted mine.”

Whoa!

That one stung. It took a number of hours to collect my thoughts on my response before sending it. I wrote back:

Me: “I was not familiar with this accelerator prior to reaching out to my contact and had no idea that it was a consultancy and not a typical accelerator program that invests money for equity. 

It's unfortunate to hear that you think I did that intentionally. I've been on the founder side. That's not how I roll.”

This founder had no other reason to do this but just to stick it to me.

On the call, I actually thought what the founder was doing was interesting and asked them in my initial pass email to keep in touch with his fundraise detail. But this email immediately torpedoed interest.

Hey, I get you’re disappointed. I totally know what that felt like. I’ve been there. It’s just straight up disappointing. Jerky or passive aggressive behavior like this is just straight up inappropriate. 

Responses like this when the founder doesn’t get the news they want sends an abundantly clear message to the investor to close the door of future opportunity and throw away the key.

No Response

The founders that don’t respond at all to my pass communication are actually much more frequent then one might think.

Frankly, I don’t know what to attribute this behavior to.

• It could be that founders don’t think my pass communication needs a response.

• It could be that founders read the email and don’t have the mental space to craft a response within the following day or two, then just forget about responding.

• It could be that founders are angry and want me to chill in the iciness of their silence.

• It could be a combination of the above and more… 😀

But here’s the deal. I’m just going to let you in on a secret. At least for me, I tend to remember when a founder doesn’t reply to my communication of a pass decision. And then, that is the last touch point with that founder.

This is much more pronounced the longer the time that I’ve spent with the founder.

For the startups that I have spent meaningful time in conversation with over the course of 2-3 months, and then we end up passing, I can actually remember the startups and their founders that never closed the communication loop with me.

Now, you might think, “Yeah right, Matthew. That’s ridiculous.” I honestly don’t try to do this. I don’t actively think about it. There must be something psychological at play. Especially after I put time into thoughtful feedback into my communication, when the founder doesn’t respond and closes the communication loop, it’s almost like my mind knows that a piece is missing. Then, it involuntarily remembers that the piece is missing over time.

I remember passing on one company. I spent probably 30 mins to make sure this response had specific feedback about our why and landed properly.

But didn’t hear anything at all from the founder after my communication. Nothing.

I wondered, “What did the founder think of my feedback?”

No signs of life.

Then, months later, poof, the founder comes back out of the wilderness offering up another fundraise opportunity for the next round, as if nothing ever happened.

But something did happen… you ghosted me. 👻 Did you remember that?

Is a Response Really Needed?

Now, founders may ask, does an investor’s pass communication really need a response? My take is, that’s not the right question.

My recommendation is that you should always respond to the investor’s pass decision communication, no matter what.

A founder’s silence, whether accidental or intentional, can send a host of different neutral or negative messages to the investor. But, direct communication provides clarity and avoids a poor impression.

Furthermore, if the founder doesn’t respond, for me, it brings up another point - does the founder view bringing on investors to their startup as a transaction or a relationship?

Frankly, not responding makes it appear that the founder sees it as a transaction. It’s like they extended their proverbial hand for one last handshake, and you left them hanging. You can’t risk that.

Do you want the investor to remember that the last touch point with you is something that you didn’t follow through on?

Founders can’t risk that.

Ways to Respond

I’m going to get really tactical here on how to respond after you get news from an investor that you didn’t want to hear.

It breaks down to this phrase, “Your goal is to be remembered, remember?”

Respond within 24 hours

Close the communication loop as quickly as possible. Especially before you get buried in your inbox and accidentally forget about it!

What should I respond?

Investors know that founders won’t like reading their communication of a pass decision.

They expect the founder to be disappointed and to match the tone in the initial email.

A founders’ goal is to come back with a response that blows the investor’s expectations away.

1) Go over the top with your appreciation for the meeting and their time.

I’m not being trite here and this isn’t an arrogant comment. But the fact that an investor had a meeting with them is notable. They see countless opportunities and the fact that they wanted to spend time learning about what you are building compared to some of the other ones is significant.

Even if you didn’t meet with them, they could have ghosted you. Yet, they sent you an email.

So, use big language to show your appreciation for their time. Use phrases like, “I know your time is valuable,” “I really enjoyed our conversation because… ,”

The more exaggerated, the better. This is an email. I can’t hear your voice, hear your intonation, or see your face. You need to make up for it in your language and words.

I remember one founder that I passed on in the last few months. We had a 30 minute chat and then I passed on them.

The founders response was so enthusiastic back to me, thanking me for my time, saying they appreciated the conversation so much, etc. I had to re-read my own email that I sent to them.

Did I know that I passed on them, or did I accidentally offer an investment? 😀

Whether or not this founder’s response was intentional or not, it made me smile. And that’s the goal.

“You’re trying to be remembered, remember?”

2) Show Understanding. Clarify if necessary.

It’s totally cool if you clarify some points that the investor didn’t get correct in their communication. In fact, it’s very, very helpful for me as an investor.

Because there is nothing worse that the founder and investor parting ways and the investor carries away wrong assumptions about the business.

So, don’t reply with novel, but you can absolutely clarify something if the investor clearly had it misplaced. One such response I received was,

“I do see your point of view and understand that the market risk is your biggest concern, but we haven't tried to convert these beta users into revenue yet [and I thought they had]. They're still in the 3-month testing phase, which will be coming up in early September. To your point, I think it is important that I make it a main focus to try and ensure that as many of these early beta users convert to show a high conversation/usage rate. [indicated that founder acknowledged the advice]

I never mind founders clarifying anything as long as it’s done in a genuine and helpful way. Not accusatory or passive aggressive.

A few questions that founders might have…

What if I am not in a mental or emotional place to form a detailed reply?

If this is the case, I would recommend still replying a simple email of understanding to avoid accidentally forgetting about responding entirely. It can be something simple such as, “Thank you so much for your time and your review! I respect your decision. As I reflect on our conversations, if I have any questions or clarifications, I will let you know in the next day or two. Thank you!”

That way, it puts you in the responded category and gives you optionality to come back again in a day or two if you feel like you will need to clarify something.

In my reply, can I get the investor to re-consider their pass decision?

As a founder, I held the assumption that if I responded with the right tone, the right info, etc. it would re-engage the conversation with the investor. As a founder, that never, ever happened to me.

Furthermore, speaking as an investor, founders should know that by the time that investors have communicated a pass decision, the investor has already mentally and emotionally moved on.

I have only re-considered the a decision once and it was an extreme case when the founder replied clarifying a few points when I had noted down a few important metrics of the startup blatantly wrong.

The founders’ response to a pass decision is completely about relationship management than it is about getting the investor to re-consider their pass decision.

In my reply, if they passed on me, should I ask the investor to refer me to other VC firms?

You certainly can, but in my experience, I probably would have offered that firm and/or introduction up already at that point. In the example of my first anecdote, with the founder who sent me the response that they wished that they hadn’t wasted their time on my intro.

In general, the best chance of success of getting connected to other investors in their network is not in a pass decision correspondence. The best opportunity is when they lead with it, especially when conversations are advancing. At all times, founders want an enthusiastic mutual introduction to that new investor. Almost every investor is not in a place to enthusiastically sell your company to another co-investor after a pass decision.

Closing Thoughts

Back to that phone call. There I was, on the phone call with this founder, who was screaming at me from the other end.

The founder was angry that I had offered up some potential introductions and yet the contacts that I brought up were not interested in an intro.

After the founder was done screaming, I paused for a few seconds. I said, “Listen, I know that you are frustrated about this. The contacts that I thought would pan out didn’t end up coming through. But regardless, it’s completely unacceptable to do to anyone what you just did to me. That’s completely uncalled for.”

I ended the call, verbally cool but emotionally heated. Any hope or inkling of me connecting this founder with anyone else vanished. We were done. Close the door and throw away the key.

But even if a founder doesn’t have a jerky response and instead doesn’t respond at all, that leaves a terrible impression for the investor’s last touch point as you.

“You’re trying to be remembered, remember?”

My contention is that even when founders receive news from investors that you don’t want to hear, there is a big opportunity.  

So, my recommendation is that you should always respond to the investor’s pass decision communication, no matter what.

• Respond within 24 hours

• Go over the top with your appreciation for the meeting and their time.

• Show understanding. Clarify if necessary.

This is a relationship, not a transaction. Founders should always be keeping their investor options open.

“You’re trying to be remembered, remember?”

Just make sure you are being remembered for all the right reasons.

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