-by Brad Svrluga, GP at Primary Venture Partners
So a VC just passed on investing in your incredible, can’t miss, seed-stage startup and you’re perplexed as to how they could be so foolish. You’re certain that you check all the boxes: Your background is amazing, the market is huge, and you’ve got incredible early signs of product-market fit. How could they say no?
Upon asking why they passed, you get one of the following answers:
- It’s still a bit too early for us. We want to see more traction to prove the opportunity.
- We’re concerned about Company X and the competitive threat they pose.
- This just isn’t a market we’re smart enough in to be able to pick a winner.
Or one of the myriad and lame other excuses we use when we pass because…well...we just aren’t feelin’ it with you.
That’s right. As seed investors, many of the deals we pass on are driven 100% by how we feel about the team. At Primary, Ben and I are singularly focused on finding founders about whom we have incredible conviction. At such an early stage in a company’s life - often before there’s a real business to speak of - there are very few metrics to quantify, no material tires yet to kick. What we’re left with is our conviction about the founders and their overarching vision for the business and the market as a whole. When we’re talking about opportunities that pass a basic hurdle of large market and thoughtful product concept, this founder conviction ends up comprising the vast majority of our investment decision.
To be clear, founder conviction is much more than founder chemistry. Of course, we want to work with founders we like and with whom we can have productive relationships. As a firm that gets into the weeds with our portfolio companies - whether it’s helping them build foundational teams, solidifying a communications plan, or assisting with customer development - we need to be able to work effectively with our founders. But conviction is more than just finding founders who pass the airport test. Conviction boils down to buying into the founders’ passion and vision for the company, understanding their differentiation in the market, and believing that their background will give the company a leg up on the competition. Ultimately, conviction is about finding killer operators with exceptional founder-market fit.
There have been a handful of occasions in my career when I’ve had a powerful gut sense of deep founder conviction within the first 30 minutes of a meeting. Remarkably, these instances align with the most successful exits we’ve had as a firm. Marc & Nate from Jet.com, Andrew from Ticketfly, Anil and Jon at TxVia, Andrew from Divide, Steve at Pump Audio… In each of these cases, we knew almost immediately that we’d found something spectacular. Turns out love at first sight is a thing in the venture business! Each one of these deals wound up being big return-drivers for our firm.
The critical nature of founder conviction wanes as you move into later-stage investing. Investors looking to put money into expansion or growth-stage companies need to be laser focused on a business’ raw financial performance and their understanding of the market, competitive dynamics, and more. Faced with what might be perceived as a B/B+ leader, a growth investor will have a hard time ignoring incredible growth metrics, and may appropriately conclude that his gut feel on the leader is empirically wrong in the face of the company’s performance. That can’t ever happen for seed or even Series A investments, where the metrics are always sparse and rife with false-positive risk. As my partner Ben likes to say, at the seed stage, we’re at least as much talent scouts as we are business scouts.
So for founders who have faced the hard-to-explain “No”, here’s the hard truth: A VC has to fall in love with you in order to put real dollars behind a company that has yet to prove itself. Regardless of the reasons given for why they’re passing on the deal, much of that decision will often boil down to the fact that the investor is just not that into you. Even when they say, “I really like you and think you’re being very smart about the industry and approach,” there may very well be an unsaid, “But I just don’t get that ‘can’t miss’ feeling from you.”
The best advice I can offer is this: Don’t be afraid to take those “No”’s at face value. Don’t waste your time trying to talk those investors out of a pass that oftentimes is rooted in pure instinct. I get it, it’s personal. And trust me, we’ve lived it when smart LPs have passed on investing in our fund. But it’s important to develop a thick skin and come to grips with the fact that not everyone is going to ask you to the dance. Your time is your most precious commodity, so move on and find others with whom you might build that conviction.
There is a silver lining here, though. The flipside of “You can’t please everyone” is that, as in love, there is someone out there for everyone. Just because I may not fall head over heels for you doesn’t mean that your business isn’t awesome and that my next-door neighbor won’t throw bags of money at your feet. Internalizing this message should give you the confidence to push onward, even with a few rejection letters in your back pocket.
Coming next, we’ll share the three questions we ask of all entrepreneurs that help us dive deep into their background, their motivations and what makes them tick.