“Yes” Actually Means “No”: The Curious Language of VCs
A failed founder’s survival guide
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Everyone wants investment from venture capitalists.
It’s the validation that catapults you onto the cover of Forbes. Your seat at the pantheon of famed tech bros like Adam Neumann, Elizabeth Holmes, and Sam Bankman-Fried.
VCs can be a curious bunch, however. They have a special secret language — a dialect that’s borderline incomprehensible to the uninitiated.
For instance, much like the Inuit people, who have many words for snow, were you aware that venture capitalists have more than 400 words for “no”?
Language betrays purpose. In Orwell’s 1984, Newspeak was created to narrow the range of thought and, ultimately, make dissidence impossible. In the same vein, VCspeak has evolved to serve one key tenet:
“Never say no to a founder, just in case.”
VCs have no incentive to sour their relationship with you. What if you become the next Zuck and remember the deal associate who let you down gently?
You’ll never hear the true reason for turning you down this time. For a pre-seed or seed round, this is either:
They don’t believe in the management team.
They don’t believe in the market opportunity.
Today, I’m telling the story of my multitude of VC rejections. I’ll impart my hard-earned knowledge of VCspeak and explain what VCs are saying when, really, they just mean “no”. Finally, I’ll close with my top 10 survival tips for when you’re out fundraising.
Fixr — The side hustle from Hell
My first real startup, Fixr — think Uber for car repairs — was a mess from the start. When I joined up as ‘CTO’, there were endemic power struggles between the existing founders and a chronic case of “if we build one more feature, then the users will flock to us”.
Through a Herculean effort of LinkedIn networking, we set up some calls with very junior VCs. None were brave enough to rip off the poisoned shirt we had woven for ourselves:
“Talk to us again when you have traction.”
In our first-time founder naïveté, we took this to heart. Our startup lived or died on whether we had traction.
Screw talking to users. Screw validation. We needed to get our product out of stealth mode and into the open. First, we’d take the market by storm. Then, we’d hoover up those promised VC dollars.
For our two-sided marketplace startup, this meant Android and iOS apps for customers, and another pair of apps for mechanics. 6 months later, we released our fully-fledged MVP to a deafening silence from customers, mechanics, and investors.
The junior VCs didn’t speak to us again.
Carbn — Phase I (Bootstrapping)
My second startup fared far better.
Carbn was an app to help people develop green habits. It was a marked improvement — we were only building the iOS app and barrelled from customer validation to MVP in our first 4 months!
From here, we had a few months of bootstrapping left in us and were desperate for our first capital injection. Unfortunately, we heard another classic refrain from the venture capitalists:
“We think you’re too early for us, speak to us when you raise your next round.”
Admittedly, that was fair when we had zero revenue and low-thousands of users. We weren’t fazed — we approached various angel syndicates, accelerators and exhausted all the goodwill we could muster via our networks.
Through the complementary magic of a strong early app store rating and my socially hypercompetent cofounder, we landed a cool £200k in angel funding.
Carbn — Phase II (Pre-seed)
With a business bank account brimming with angel funding, we went on a hiring spree and maintained a consistent 10% week-on-week DAU growth — nothing to sniff at. But was it enough?
We were wrestling with a critical strategic issue: Should we remain a B2C consumer habits app or position ourselves in the B2B space as a climate-conscious employee perk? Having dipped our toes into both approaches, we’d hit our pre-seed growth targets and began to reach out to VCs for our next round.
We encountered the customary mix of ghosting, half-arsed lukewarm interest and genuine leads. This time, as well as the classic “come to us with more traction” and “talk to us in your next round,” we had some bigger fish biting for a second meeting.
We’d been speaking with a partner at a top-tier Silicon Valley VC. He was enthusiastic about Carbn, and asked us to present at their Monday Partner Meeting. Our presentation and subsequent conversation lasted over 2 hours. They told us they saw us becoming the climate B2C play. We felt it went well.
February 2022.
I was suffering the worst norovirus of my life. I’d been playing Elden Ring for 10 hours straight. I couldn’t tell whether I was dying more in-game or in real life.
We got the call from the VC.
“We like you, we want to invest, you should start hiring now.”
I was in too much pain to feel any satisfaction. Surely this was the VC funding I’d been waiting for my whole life? Through my fever delirium, I saw myself on the cover of Forbes, high-fiving the Fyre Festival guy.
My cofounder and I switched gears hard to focus on landing top-tier talent for our nascent engineering, product, and growth departments. In the meantime, we sent draft terms to our VC and… crickets.
The markets were spooked by some geopolitical shenanigans, and VCs were suddenly hesitant to dole out cash at 2021 valuations. As our other leads ran cold, we held onto the hope that our deal was still in the bag.
Cue months of umming and ahhing from our friend in Silicon Valley. After their white-hot conviction about the B2C opportunity for a climate action app, our VC developed a newfound passion for the comfortable cashflow prospects of a B2B proposition.
Which we would have been fine with had the markets not been deteriorating further, and our borderline deal was consequently losing its lustre.
It eventually became clear that our seed round wasn’t happening. My cofounder and I agreed to call it a day.
The VC Codex
Let’s delve deeper into VCspeak. We’ll analyze the VC rejections I’ve encountered and try to find the true meaning behind the words.
1. Traction
When they say: “Talk to us again when you have traction.”
They really mean: “If you prove there is a market opportunity and that you can execute as a management team, then we might consider you. But because I don’t believe either of those things will happen, I will not be taking a risk on you”.
Passing on Fixr was the correct choice. In retrospect, there was no chance our management team was capable of successfully creating a two-sided marketplace, which is widely regarded as the hardest kind of startup to build. Don’t get me started on the abysmal decision to build 4 native apps on 2 platforms before we had a single transaction.
2. Early Stage
When they say: “We think you’re too early for us, speak to us when you raise your next round.”
They really mean: “We’re an early-stage fund, but generally speaking, we only invest pre-seed in second-time founders and people with executive-level industry experience in this sector. We like the opportunity but don’t believe your management team is the right one in which to invest.”
Again, this is a pretty reasonable stance. While VC is inherently risky, these risks can be mitigated by backing management teams with a proven track record. Naturally, the riskiest pre-seed dollars are allocated accordingly to increase the chances of achieving a 3x ‘venture rate of return’ for a given VC fund.
3. Yes Actually Means No
When they say: “We like you, we want to invest, you should start hiring now.”
They really mean: “We do really like your vibe as a founding team. We see your potential. We do genuinely want to invest, and want to set you up to move quickly once the deal closes. Please note however that this is neither a term sheet or a wire transfer. Perhaps we want more time to evaluate other options in the space. We lack conviction.”
Venture capitalists are a famously fickle bunch. One day, they can be keen as a bean on your lean, mean, consumer business. The next day, Putin invades Ukraine and you’re a borderline B2B prospect that needs to show unit economics.
Jacob’s Top 10 Survival Tips
My story is typical of my fellow failed founders — some gaffes in our early ventures as we learn the ropes, a few promising steps as we gain entrepreneurial experience, and a veritable funding brick wall in 2022.
Here are some quick and dirty thoughts to keep your head screwed on right as you look for startup funding:
If a VC gives a reason for turning you down, don’t necessarily take it at face value.
Be self-critical about your management and the market. Your team or the opportunity might just not be right.
For your first round, it’s much easier to convince a single angel investor than a roomful of VC partners.
When you land a lead angel investor, the rest become easier to find.
If you aren’t a big dog in your industry or haven’t had a startup exit before, the bar for pre-seed VC investment is pretty high.
In a VC firm, you need an influential internal champion who will fight hard for your startup.
Don’t play coy with VCs. Don’t stop talking to them, and don’t let a term sheet get away before the market turns.
“Yes” doesn’t always mean “yes”. Your raise isn’t over until a wire transfer hits your account.
VC funding is cool and all, but essentially, it is a waste of time if you haven’t validated your market: bootstrapping to get paying customers quickly is the most effective tactic available.
In all honesty, you don’t want to take external funding unless you have intensely strong user growth; and being unable to hire becomes your bottleneck.
Have you encountered any rejections we could add to our VCspeak phrasebook? Do you have any hard-earned wisdom to append to the survival guide? Let us know in the comments!
Jacob, this was hilarious. It also reminded me of William A. Sahlman's How to Write a Great Business Plan which has a similar section that I love to reread about translating what founders say in business plans vs. what it means. Thanks for writing this.
I've certainly seen some of these before.