Why VCs Ghost Founders: Deal Rejection & Silent Treatment

The Disappointment of Investor Ghosting

Experiencing a lack of response from potential investors, often referred to as being “ghosted,” can be disheartening for founders. This situation mirrors the frustrations encountered in personal dating scenarios.

Founders frequently find themselves questioning the silence, wondering about potential missteps. Concerns arise such as whether the investor disliked the product or had personal reservations.

Understanding the Implications of Silence

A failure to receive a reply is a clear indication of disinterest. If a venture capitalist (VC) were genuinely interested in investing, they would invariably respond to initial contact or follow up after a pitch presentation.

Several VCs have shared insights with TechCrunch regarding the diverse reasons behind this phenomenon, explaining why they might cease communication after initially expressing interest or even scheduling a meeting.

Common Reasons for Investor Disengagement

• Market Conditions: Shifting economic landscapes can lead VCs to pause investments.
• Internal Priorities: A firm’s investment focus may change, causing them to redirect resources.
• Lack of Fit: The startup may not align with the VC’s portfolio or investment strategy.
• Due Diligence Concerns: Issues uncovered during research can lead to a silent withdrawal.

It’s important to remember that ghosting doesn’t necessarily reflect negatively on the founder or the startup itself. Often, it’s a result of factors beyond your control.

While frustrating, founders should view unanswered outreach as a signal to focus efforts on other potential investors. Persistence and a broad network are crucial in the fundraising process.

Time

According to Mercedes Bent, a partner at Lightspeed Venture Partners, time represents the most limited resource for many individuals. This observation stemmed from a widely shared LinkedIn post addressing the phenomenon of VC ghosting.

Ventures capitalists will predictably dedicate a greater proportion of their available time to founders and startups demonstrating significant promise. Bent articulated this point in her viral LinkedIn discussion.

Crafting a considered rejection requires substantial effort, and when a potential investment doesn't materialize, it's frequently postponed. Bent clarified this isn't an endorsement of the practice, but rather an explanation.

The investment landscape has undergone considerable change in the last ten years, compelling VCs to accelerate their decision-making processes. Consequently, they have less time available for responding to potential investments.

“The venture capital sector has experienced explosive growth – an increase in firms, capital, and pitch submissions,” Bent explained. This emphasis on volume and speed diminishes the personalized attention that previously characterized the industry.

This rapid expansion has fostered a fast-paced environment where relationships often feel more like transactions than genuine connections, she further noted.

Sheel Mohnot, co-founder and general partner at Better Tomorrow Ventures, attributes missed responses to periods of intense workload. These situations are never a reflection on the founder, but rather on competing priorities.

Mohnot explained to TechCrunch that these periods often coincide with fundraising efforts, events like founder camp, annual general meetings, or industry conferences such as Money 2020.

Eric Bahn, co-founder and general partner of Hustle Fund, utilizes an automated email reply to manage the high volume of inbound investment proposals. He receives approximately 30 pitches daily.

Bahn detailed to TechCrunch that his automated “out of office” message directs founders to a form on their website for submitting proposals. The team reviews all submissions, but a personal response to every email is no longer feasible.

However, Bahn emphasizes that he will always provide feedback to founders with whom he has already held a meeting. He will never leave them without a response.

“If I decide to pass on an investment, I will articulate the reasons and offer constructive criticism,” Bahn stated. He believes this practice should be more consistently adopted by venture capitalists.

Warning Signs That Can Lead to Investment Rejection

A venture capitalist, requesting anonymity, expressed concern regarding AI-generated founder outreach, stating to TechCrunch that the volume of such messages is overwhelming genuine attempts at connection. They identify these messages through repetitive structures and occasional factual errors.

This investor believes that widespread use of AI in outreach will ultimately diminish its effectiveness as a channel for reaching potential investors.

The source predicts a future where unsolicited emails are automatically filtered out due to the prevalence of AI-generated content. Consequently, establishing new connections will necessitate social interactions or in-person meetings.

Common Founder Mistakes That Raise Concerns

A significant issue for investors like Bahn is a demonstrable lack of self-awareness. Founders should avoid claims of having no competitors or facing no significant threats to their business.

Bahn routinely asks founders to identify potential factors that could lead to their company’s failure. He notes that a surprisingly large number respond by stating that nothing could jeopardize their venture.

This response is viewed as unrealistic, as numerous factors – including competitor advancements, regulatory changes, or unforeseen events like pandemics – could pose a threat.

Bahn emphasizes the importance of recognizing risks and having mitigation strategies in place. He references Andy Grove’s famous quote: “Only the paranoid survive.”

Mohnot points out that an inability to articulate a growth plan beyond the initial idea is a negative signal. Conversely, he is also wary of overly ambitious claims, such as promises to “immediately disrupt an entire industry” or projections lacking supporting data.

He also finds it concerning to observe tension or a lack of complementary skills within the founding team, which suggests potential difficulties in collaboration. An excessive focus on fundraising, rather than on building a viable business, is another deterrent.

Attention to Detail and Transparency are Key

Rex Salisbury, of Cambrian Ventures and formerly Andreessen Horowitz, stresses the importance of preparedness. A pitch deck with an outdated file date (six months or older) is considered a negative indicator.

However, misrepresenting data is an immediate deal-breaker, resulting in the termination of further discussion.

Founder Conduct and Venture Capital Interactions

Certain behaviors can definitively conclude conversations with venture capitalists. Bahn emphasizes that any display of racism or sexism results in immediate disengagement.

He recounted an instance where a founder used derogatory language towards a competitor during a meeting. “I will not dedicate the next ten years to collaborating with someone exhibiting such disrespect,” Bahn stated.

Founders should remember that even a current rejection doesn't preclude future consideration. Disrespectful behavior following a rejection can eliminate any possibility of future collaboration and may lead to permanent severance of communication.

Bahn’s firm sometimes provides comprehensive rejection feedback, only to have founders respond with insults or even threats. He has observed this occurring disproportionately towards his female colleagues.

“These instances are valuable, confirming our correct decision not to partner with that founder,” Bahn explained to TechCrunch.

“Such individuals are subsequently blacklisted – we will cease all communication and document the interaction within our internal database to ensure our firm avoids future engagement,” Bahn added.

Dishonesty was universally cited by VCs as an immediate disqualifier. Addie Lerner Katz, founder and managing partner of Avid Ventures, highlighted that dishonesty manifests in various forms, including exaggeration and a lack of openness.

She also expressed disapproval of founders who speak ill of current or former investors or colleagues. Negative feedback from reference checks also raises concerns for Lerner Katz.

“We treat even minor warning signs with significant seriousness, often considering them grounds for disqualification,” she shared with TechCrunch.

Mohnot recalled a situation where a founder misrepresented a deal with another startup. This startup happened to be within Mohnot’s investment portfolio, allowing for swift verification.

However, broader falsehoods regarding metrics, team skills, market scope, or technological capabilities are frequently uncovered by VCs during due diligence.

“This occurs more frequently than one might assume,” Mohnot noted.

Despite the prevalence of ghosting, all VCs believe a simple “no thank you” follow-up is essential after a pitch meeting. Bent acknowledged the unfortunate reality of the situation.

“These aren’t justifications, merely observations about the current landscape,” she wrote.

However, considering the potential repercussions of negative interactions with a VC, she advocates for applying the golden rule to both sides. “Treat others as you wish to be treated.”