Sometimes, it is better to get a quick 'no thanks' from your friendly VC. Photo: Shutterstock.
Sometimes, it is better to get a quick ‘no thanks’ from your friendly VC. Photo: Shutterstock.

While many entrepreneurs want nothing more than a rapid “yes” from investors they approach for funding, getting a quick “no” is often the next best response.

It may sound counterintuitive. But a quick “no” enables entrepreneurs to quickly refocus their fundraising efforts on more productive avenues and get valuable feedback along the way.

The worst is the dreaded “maybe” — where entrepreneurs get strung along for months by dithering investors who always ask to “see more” before pulling the trigger, wasting a tremendous amount of entrepreneur time along the way.

Raising investment capital is a game of numbers. The more times entrepreneurs pitch, the better their chances of finding the right match.

Moving efficiently through this process can minimize the time entrepreneurs spend fundraising, which can easily consume 70 percent or more of a CEO’s day. It also can maximize the time spent instead on building their companies.

Here are three tips for entrepreneurs to get to a quick “no” from investors:

1. Start by securing a deal lead

Photo via Shutterstock.
Photo via Shutterstock.

Investors can be divided into those who lead deals — and those who follow. Entrepreneurs often get stuck with a lot of “maybes” because they inadvertently target deal followers instead of deal leaders. Focusing first on securing a deal lead, who can help syndicate the round to followers, greatly increases the efficiency of  the process and generates fundraising momentum, forcing the “maybes” into making a decision.

Entrepreneurs can often find deal leads mentioned by name in company funding announcements. Also, networking within the local community with fellow entrepreneurs, managers of startup accelerators, and attorneys who focus on serving startups allows entrepreneurs to get information about potential deal leads and what it is like to work with them. Both AngelList and the Angel Capital Association can be useful resources for identifying active investors; though entrepreneurs will still need to do the necessary homework to narrow down the list by industry sector, recent activity and other filters relevant to their companies.

For entrepreneurs meeting investors for the first time, ask if they have ever led an investment round before. Deal leads are usually motivated and excited about an entrepreneur’s company. They will become one of an entrepreneur’s main allies in securing the rest of the investment or quickly moving on from “maybes.”.

2. Be open to investor feedback

Building a successful business requires listening to the good and the bad — and knowing what is important to act on. Not all investor feedback will be useful or even correct. It’s the entrepreneur’s job to determine that.

Acting defensively guarantees that investors will not be willing to offer real feedback. Develop a thick skin. Accept investor feedback. That is a mark of a mature entrepreneur. This also increases the likelihood of honest feedback, including straight “nos.” The information that investors provide — even when they say “no” — can be extremely helpful in building a company.

3. Setting and communicating a deadline

Establishing upfront with investors a that you are targeting for the closing of the fundraising signals confidence, provides an impetus for driving the process forward, and serves as a forcing function for investors to act.

Failing to do so can lead to lingering rounds where an entrepreneur is stuck fundraising for extended periods of time and unable to push investors to a decision.

When entrepreneurs do receive a “yes,” using a framework such as YC’s “Handshake Deal Protocol” or something similar is a great way to make sure that both sides are truly in agreement and how they will move forward.

Diego Oppenheimer (@doppenhe) is Founder and CEO of Algorithmia, a Madrona Venture Group-backed startup that gives developers the ability to turn algorithms into scalable web services with a single click. 

Yi-Jian Ngo is Managing Director of the Alliance of Angels (@allianceangels), the most active angel group in the Pacific Northwest.

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