Why VCs Really Reject Startups 217
itwbennett writes "Instead of simply not following up with startup proposals that he doesn't intend to pursue, venture capitalist Josh Breinlinger decided to change things up and not only hear every pitch request but respond with honest feedback. For those on the receiving end of that honest feedback, Breinlinger's silence may have been golden. It turns out that Breinlinger, and perhaps most VCs, reject your proposals because you lack experience and leadership skills and your team is weak. Would you rather hear the hard truth about why your startup didn't get funded or some vague dismissal?"
Hard truth (Score:5, Insightful)
You can't fix what you don't know.
Old business doesn't want new business (Score:3, Insightful)
Toughen Up (Score:5, Insightful)
Would you rather hear the hard truth about why your startup didn't get funded or some vague dismissal?
If you can't handle hearing the cold, hard truth then you are in the wrong line of business. Period.
Ideas are worthless (Score:5, Insightful)
Ideas are worthless. We have great ideas all the time (or at least, ideas we think are great). The value of a business proposal isn't in the idea, it's in the execution of the idea.
The most important things to a serious VC when it comes to a startup have almost nothing to do with the idea itself. You don't have to convince them of the idea: they've probably heard it before already. You're trying to convince them that YOU are the one to EXECUTE that idea, and that you can do it better than anyone else. If you can't, then the'll fund that other person instead.
When you approach a VC, the only thing you bring to the table is your ability to execute the plan you've proposed.
Re:Toughen Up (Score:1, Insightful)
Re:Old business doesn't want new business (Score:3, Insightful)
Then it's not VC (Score:5, Insightful)
Re:Old business doesn't want new business (Score:4, Insightful)
Crony capitalism at work
FTFY
Startups are made of engineers (Score:5, Insightful)
Anyone whose ever managed a business will tell you it takes much more than a good idea to make a business successful: it's 10% idea, 90% execution. Thus, if you go to a VC with nothing but a good idea, you're falling 90% short.
Re:Old business doesn't want new business (Score:4, Insightful)
"Crony capitalism at work"
As if there were any other.
A good old guy going to business with another good old guy he is confident of.
Wouldn't you do exactly the same?
(Yes, it's an aporia: you either answer "yes", making my point, or you answer no, and then I'd say "that's why you are not a millionarie in the position of becoming a VC").
Re:Hard truth (Score:5, Insightful)
Agreed. And even without asking for funding from an outside party, I wish I'd gotten some honest advice before pursuing some of my past ideas.
I suspect most would say this though... right up until they hear why their idea sucks. Then that person is, "just a cranky old hater trying to ruin my dreams".
Re:Hard truth (Score:5, Insightful)
I suspect most would say this though... right up until they hear why their idea sucks. Then that person is, "just a cranky old hater trying to ruin my dreams".
Maybe so, but if my dream is going to be ruined, I'd rather it happened before my career and/or personal finances were ruined with it.
My immediate reaction to the original question, "Would you rather hear the hard truth about why your startup didn't get funded or some vague dismissal?", was that almost everyone who is ever going to succeed in business would want the hard truth, and a lot of people who were going to fail would think they knew better and didn't need to hear it.
Re:Old business doesn't want new business (Score:5, Insightful)
The business climate in the US is: old, entrenched businesses fight other old, entrenched businesses in a race for the cheapest shit.
Which is, of course, why young/rejuvenated companies like Apple, Google and Facebook have never made any money and are just looking to get bought out by older and more entrenched players like Microsoft, Yahoo and IBM.
Re:Hard truth (Score:5, Insightful)
I'm neither a successful VC or a gajillionaire start-up guy, but I hope I'd think of it like this...
If someone points out a problem with my idea and I immediately get defensive, it's probably a very serious problem.
If it's something I've heard more than once, I'm probably really screwed.
If they made a judgement based on my pitch and I think it's because they just don't understand, then I'm probably not good at communicating ideas and I'll probably fail at communicating the idea to the masses, too. That's a big weakness, just of a different variety.
If I think I've explained it well, in a way everyone would understand, their concerns are not problems, and it's a very workable idea... I'd ask myself how someone that evaluates these ideas for a (successful) living could be that, "stupid". More likely than not, an amateur like me is wrong, not the other guy. Work from there...
Re:Hard truth (Score:5, Insightful)
Oh man, this is a hard one. I was a VC for almost 8 years, and made a point of giving feedback, because I'd done 6 startups before, and knew how frustrating fundraising can be. There's nothing worse than being turned down (or ignored) with a BS reason, because you can't learn from it.
If the reason was "I don't understand your space and so can't add value", or "We don't invest in companies at your stage" or "We already have a competitive company in this space", it went down ok with the entrepreneur(s). If it was "I don't have confidence in the market opportunity" or "I think that there's too much risk in your technology (this never applies to software, but often applies to new semiconductors, batteries, alternative energy and the like)", it sometimes annoyed the entrepreneurs.
But, if the reason was "You're not the right CEO", oh, boy, it usually went badly. The problem was, that was the most common reason.
Worst of all were the crazy people. #1 on the crazy list are the "lossless compression" types. Even taking them through the math that, of course, no compression scheme can reduce all arbitrary data sets (n bits can only represent 2^n different data sets) had no effect. They also tended to get the most annoyed when I turned them down. #2 was the astonishing number of entrepreneurs who would present business plans showing revenues over the next 4 years of $1M, $10M, $100M and $1B, with >95% profit in that 4th year. Telling them that they simply had no idea about how to run a business also went badly. You could invent matter transmission and not get that kind of profitability.
There's another reason that VCs don't always give feedback: they don't want to miss the deal if another VC decides to invest. Maybe that other VC sees something unique, or has a plan to replace the not-good CEO, or something else. VCs really hate it when they invest in a company and it all goes to hell, and they lose their investment. They hate it even more if they turn down a deal and someone else makes a fortune on it. Some of the more self-effacing (and hence more likeable) firms will post on their sites a list of the great companies that they turned down. A lot of people turned down Google and Facebook, for example.
I still think that the best way is to give honest feedback, without being offensive.
Re:Hard truth (Score:5, Insightful)
"Had I asked my customers what they wanted, they'd have answered stronger horses". (Henry Ford)
Your points are valid, but only up to the point. Some people, and VCs are no exception, simply can't see the elephant in the room. I'd wager that more than a few VCs rejected, say, Google, or Twitter, or Instagram. When you're doing something completely out of the box, your audience will generally not get what you're onto.
The guy who started Europe Assistance is but one example. Faced with rebuttals from his potential financiers that there was no demand, he eventually showed them a phony market study that suggested there is. The rest is history.
Re:Hard truth (Score:5, Insightful)
Exactly. A VC is a person who got lucky, once. It doesn't qualify them to judge startups, but allows them to do so.
I'd prefer the truth (Score:4, Insightful)
If I don't know what's wrong, I can't fix it. A vague dismissal doesn't help me improve things. And I'd posit that it doesn't help the VC either. VCs don't themselves come up with startup ideas, or they'd be doing that startup instead of looking for startups to fund. Where do they think the startups they can fund will come from? The more marginal ones take the feedback and use it to improve their plan, the more good opportunities the VCs will have to choose from.
Re:Hard truth (Score:5, Insightful)
Your benefit is the result of your action.
It is also a result of the opportunities you had.
Life might be a meritocracy if everyone started out with equal opportunities, but that obviously isn't even close to true.
Re:Hard truth (Score:4, Insightful)
But the reality is that your benefit is NOT typically the result of your action. The most probable way to become rich in our society is to be born that way. That's the opposite of meritocracy, assuming you subscribe to the standard definition of meritocracy.
Re:Hard truth (Score:3, Insightful)
that's a fantastic fantasy you have there. that's why all those hard working african kids starving to death in the desert deserve what they got, right?
Re:Hard truth (Score:3, Insightful)
There's no idea so good it can't be torpedoed by incompetent management. Facebook could have died a million ways from expanding the wrong way, spamming their customers, monetizing their customers, intrusive ads, turning their interface into something ugly or annoying or buggy, high downtime, simply being too slow to expand and getting leapfrogged or whatever. One bad apple is always replaceable but if you feel the team they've put together isn't up to the task, if you don't have confidence in the decisions they've taken so far how are you going to have confidence in them going forwards? How can you know that they haven't already hired a bunch of people that are going to be sand in the machinery? It's foolish to think you can pop in a new CEO or even CxOs and fix everything.