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How and Why Venture Capitalists Should Say No To An Investment Opportunity

No is the most frequent and likely the most important word VCs should use. There are a variety of ways to say No and a number of ways VCs can be better at it. Brady Bohrmann of Avalon Ventures explains four tips for other venture capitalists.

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How and Why Venture Capitalists Should Say No To An Investment Opportunity

  1. 1. How and Why Venture Capitalists Should Say No To An Investment Opportunity by Brady Bohrmann, Partner at Avalon Ventures
  2. 2. About Brady Bohrmann Brady has over 20 years of experience as a venture capitalist and operating executive in both information technology and biotech. His focus is on early-stage investments and backing talented entrepreneurs. Throughout his venture capital career, he has worked with over 75 companies. He currently is a director or observer of many Avalon portfolio companies, including Backupify, Chart.io, Cloudant, Inc., Conjur, Indix, Juliet Marine Systems, Kaltura, Kinvey, Memrise, Nanigans, Pingup, Redbooth, Selectable Media, Simulmedia, The Happy Cloud, Twinstrata and Vook.
  3. 3. As an investor, I get to say “Yes” to a variety of exciting opportunities, but I can’t say “Yes” to everything. In fact, “No” is the most frequently and likely most important word I use.
  4. 4. There are a variety of ways to say “No” and a number of ways VCs can be better at it.
  5. 5. 1. Define Your Firm Avalon Ventures is a seed and early stage technology-focused venture fund with an emphasis on information technology and life sciences. By defining what early stage investing means to us, we are able to stick to it with every investment opportunity.
  6. 6. Defining Your Firm While there is no one-size-fits-all definition of what “early stage” entails, it means we are either the catalyst for starting a company, or the first, and often only, institutional investor. Understand what defines your firm.
  7. 7. The Opportunity If a prospective company is solving a real problem, has a great team, but are not in our industry or are farther along than we invest in, we have a great opportunity that we should connect to the right hands.
  8. 8. 2. Be Transparent There are many reasons why a VC may decline an investment, and most of them have very little to do with the quality of the opportunity and team.
  9. 9. Reasons to Decline an Investment Opportunity • Late in a fund cycle • Have enough exposure in a given area • Deem the opportunity as competitive or too close to an existing investment • Short on bandwidth at the moment
  10. 10. Honesty and Transparency Trump All Some VC’s take meetings for the purpose of: • Educating themselves about a market • To conduct due diligence on a competitive opportunity  However, I believe we need to be honest with ourselves and the entrepreneurs. If we have genuine interest in a space or company then fine, but we should not take a meeting if we know we have no intention of investing.
  11. 11. 3. Be Constructive Saying “No” in a constructive way is good for the VC, the company and the startup ecosystem.
  12. 12. Relational Currency Building relational currency is another way VCs can show support for an idea or company and avoid burning a bridge. Whenever possible, try to add something of value to the company.  
  13. 13. an example: Relational currency can include: • Introductions to investors, partners, customers • Offering constructive feedback on the plan
  14. 14. The Benefits Market disruption is an uphill battle that VCs and Entrepreneurs fight together. When we come across people doing the same hard work in a different camp, we need to encourage and connect them. Doing so benefits startup culture as a whole.
  15. 15. 4. Actually Say “No” When a startup is not a fit for you, or another firm you’re acquainted with, it is important to actually say “No.” Doing so shows respect for the company and allows them to continue their search for the right partnership.
  16. 16. an example: Mark Suster, VC and two-time entrepreneur, recommends writing a personal response, but streamlining the way you talk about opportunities you cannot take advantage of. This ensures that you respond in a timely manner, allowing that opportunity to find someone who can be involved.
  17. 17. It’s Our Job To Say “No” Saying “No” is an important part of our job and responsibility as a VC. It makes the opportunities we say “Yes” to all the more exciting.
  18. 18. The Takeaway VCs need to be better at saying “No.” Making an effort to be better at closing the loop prevents ruining a relationship and your reputation as a VC.
  19. 19. Learn more! Visit http://avalon-ventures.com/blog for more actionable advice on early stage startups, VC funding and other entrepreneurial tips.