At the time Megan and I were discussing this blog post, I was sitting outside the office of an investor friend of mine who was thinking about putting money into one of my clients. Unfortunately for my client, he’d been “thinking about” it for four months. Every time they chatted, he told them he was excited about them, but not entirely sure yet. “Stay in touch, let’s keep talking, let me know how sales go next month,” rinse, repeat. And so, when I got off the phone with Megan, I was going to walk into his office, sit down in front of him and ask, “Hey man, we’re friends, and I know you might not want to say no, but are you going to fucking invest or not?”
He is either going to say, “Yeah, no, not right now,” or “I’m so sorry, yes, we’re getting this taken care of this week.” And while, if he says no, I wouldn’t by any means call it a “quick no,” at least it will no longer be an incredibly long maybe. Either way, my client won’t spend another hour thinking about his answer.
When it comes to fundraising, a quick “no” is ALWAYS better than a long “maybe.” Because the biggest challenge of fundraising actually isn’t getting a yes, it’s spending as little time as possible getting to that yes.
To be sure, one of the primary responsibilities of a CEO is raising capital. The CEO is also responsible for building the business, and raising capital is just a means to that goal. More than anything else, they need to raise funds as quickly as possible to get back to building their business.
I regularly say that investors are in the business of saying no. I’m going to modify that a bit for this article. What investors are really in is the business of saying maybe. And that’s because once a decision is made, it can’t be unmade. Investors want to invest in good companies, and the moment they say yes is the same moment they stop being able to evaluate whether a company is good or not. Any number of things could happen tomorrow that determine whether or not a company is good — they could miss sales targets or lose their CTO, Google could launch a competing service — the possibilities are endless. Therefore, it’s better for investors to be “excited,” say maybe and ask for more information. If an investor doesn’t have to invest today, it’s in their best interest to wait.
To be honest, the only reason an investor ever acts is because of FOMO (Fear Of Missing Out, if you’re not a millenial). It’s incredibly irrational, but the best way to get one investor… is to get another investor. The only way they feel they can rationally commit to anything is if the downside of waiting is perceived as greater than the upside of waiting. If they find out more information tomorrow, but that information is they can no longer invest, that’s bad.
There’s a few ways to make FOMO happen. Term sheets are a great one. Another is to show so much growth that you make investors worried you’ll be worth twice as much in three months, so they better invest now.
Take for instance, another one of my clients. They’re currently in a $12 million funding round, and he has $15 million committed. The catch is, there’s no lead investor, and everyone is only committed once they find a lead. Let’s say a lead comes on for $6 million, that’s $21 million committed for his $12 million round. Not a bad place to be, but in order to finish it off, he needs some FOMO.
My advice to him to help create it? The next time they have some good news, schedule a phone call. Once all the potential investors are on the line, tell them they are overcommitted in their round and the only way he can guarantee they’ll be able to participate is if they sign a term sheet as the lead, TODAY. I think he’ll be fine.
Getting back to quick no’s vs. long maybe’s. As a founder, your most precious resource is time. This is true whether you just raised a huge seed round and have enough runway for the next year, or if you’re starting to worry about how you’ll make payroll next week. Even so, most founders get frustrated by quick no’s because they feel like they’re not being taken seriously, or that if they’d been given more time they could have made a deal. Stop thinking like that. A quick no is a gift, and most of the time it has nothing to do with you. Don’t take it personally, don’t spend time arguing with the investors in your head and just move on to investors who are engaged.
And for those investors who aren’t willing to give you a quick no, at a certain point, you might have to just say no to them. Here are some handy benchmarks:
- A lead investor (let’s say, $500k to a couple million investment in a pre-seed or seed round) may require as many as five conversations with you.
- An angel ($50-250k) gets three conversations max.
If anyone asks for an extra conversation, fine. But if you’re on your 6th conversation with any investor and they’re still not signing, that’s when YOU say no. And you know what’s great about that? It creates FOMO.
Because when you tell someone “no,” you don’t have to say “no, you can’t invest in us any more,” you can just say “no, we’re not going to spend any more of our time answering questions because we have a business to run.” Those are totally different answers. And who knows, maybe you’ll finally get your yes.
— Eric Marcoullier
Quick nos are better than long maybes in more than just fundraising. This axiom also applies to partnerships, hiring, and really anything where you as a founder need a quick response. It’s about what’s optimal for you, the founder, vs what’s optimal for the person on the other end of the line. If you’d like to talk more about how to best optimize for yourself as a founder, drop me an email at email@example.com or check out my coaching site at marcoullier.com.