Brian S. Cohen is chairman of the New York Angels.
Startups seeking angel funding shouldn’t be so afraid of the word “no.”
In fact, “no” is usually the next best word — after “yes” — you want to hear. Get to “no” as fast as you can.
It’s not easy. Angel investors and VCs have little incentive to say no. After all, something about the situation may change, and the investor might want another shot at the deal. Why close doors and foreclose that possibility?
Of course, all this means is that founders are victims of the “slow no.”
In sales, the next best thing to a “yes” is a “no.” Smart startups know that only a small percentage of the angels they approach will eventually invest in them. The trick is to limit your resources to the angels that are most likely to invest and cut your losses with those that are unlikely to invest, no matter how many questions you answer or how many documents you provide.
Time is the most precious resource you have. Don’t squander it by pursuing angel investors who will never fund your startup.
Startups have to vet angels even more diligently than some angels vet startups. Know the angels who are likely to fund you by virtue of the relevant and timely investments they have funded in the past. It helps if you narrow your focus to angels that are a good fit for your product or service, based on past investments. That avoids unfruitful conversations from happening in the first place.
No should come with a because
Entrepreneurs deserve a quick no. If angels are not going to invest, then they are wasting the founder’s time and that’s all they have, so it’s not fair to waste it.
In theory, I believe that entrepreneurs deserve to hear exactly why I decline to invest. Normally, when I reject an opportunity, I think it’s fair that I give the entrepreneurs at least one constructive piece of information about their presentation or idea. No should always come with a because.
Unfortunately, I don’t always do that, and here’s why. Instead of listening respectfully and accepting my decision, some entrepreneurs confuse my response with an opening to protracted negotiation. That’s not how most angel investors roll.
When I say no, I mean no, not yes with a different valuation.
Here’s the Deal
We need each other, so I’ll make an agreement with you. I’ll do my level best to give you a quick yes or a quick no. I will also, within the limits of my other commitments, give you at least one specific and actionable reason for my decision, By actionable, I mean a reason that you can actually learn from or do something about.
In return, you need to accept my decision, whatever it may happen to be. I’ll give you my honest assessment of the opportunity you have offered me. You don’t have to agree with my decision, but you should to accept it.
That’s an agreement from which I believe that both entrepreneurs and angel investors can profit. I gotta tell ya, it works and makes entrepreneurs very happy!
Brian S. Cohen is chairman of New York Angels and the author of What Every Angel Investor Wants You to Know: An Insider Reveals How To Get Smart Funding For Your Billion-Dollar Idea (with John Kador, McGraw-Hill). Cohen is the first investor in Pinterest. Over the past decade, he estimates he has considered more than 1,000 pitches for startups.