How to say “no”: A guide to passing

Oct 20, 2022

Unfortunately, as investors we have to pass often. How you do so matters. Here’s a guide on how to do this well.

As VCs, we say “no” a lot more than we say “yes”. How we say “no” (or “not now”) to a founder is extremely important. In this edition, you’ll hear how VCs approach passing on founders, what they include in their delivery, and examples of pass emails they’ve sent.

It’s important to have empathy for founders during the fundraising process. Building something new is incredibly difficult, and founders remember VCs that treat them poorly. So, beyond being a kind human, it’s in your best interest as an investor to pass “well” in this heavily relationship-driven business.

Perhaps counter-intuitively, pass emails are an opportunity to build a longer-term relationship with the founder and provide helpful input on the business. As investors, we see different things than founders do. Well-crafted pass emails share something helpful or perhaps a different perspective that might inform the founders’ future pitches, strategy or ideas. Of course, we’re often wrong so any input should be delivered with humility. We all end up passing on successful companies, so it’s useful to acknowledge that things can change in startups, quickly, and in a big way, and leave the door open to re-engage with the founder.

If you only have a few minutes, here are the patterns we saw in investors who pass “well”:

  • Have a clear process in place. It’s helpful to think about passing holistically as a part of running a transparent, efficient, and empathetic process with founders. This is especially important for investors meeting dozens of founders a week.
  • Acknowledge that founders know more than investors. There is always an information gap between investors and founders who live and breathe the business they’re building. Investors should be self-aware of that.
  • “Good” pass emails are genuine, specific, and helpful. “Bad” pass emails on the other hand are opaque, vague, and ultimately take a transactional view of relationships.
  • It’s OK to use a template for pass emails, but don’t be mechanical. Having a template for pass emails can help you deliver them to founders on time, but it’s important to stay human and fill it with authentic, accurate feedback.

Shoutout to Charles Hudson (Precursor Ventures), Daniel Gruneberg (Quiet Capital), Julian Shapiro (Julian Capital) and Nikhil Basu Trivedi (Footwork) for contributing.

How Daniel Gruneberg @ Quiet Capital creates transparency upfront

Fundraising can feel like a “black box” for founders. On his first call with a founder, Daniel shares what he looks for in investments, how much bandwidth he currently has to dive in, and other details that give the founder more insight into his process. This helps him kick off relationships with founders from a place of transparency vs a place of opaqueness.  

Here’s more from Daniel:

“As a founder and investor, I’m constantly reminded that excellent communication is at the core of every great relationship. During the fundraising process, the onus is on the prospective investor to remember that founders are really putting themselves out there. It is a moment that is exciting but also highly vulnerable for the team. From my POV, table stakes for passing include being fast, genuine, constructive, and honest. I've learned it's also important to properly set expectations out of the gate, so founders have a clear sense of process and timeline well *before* any decision. I aim to take some time on the very first call to explain our investment process, current bandwidth, high-level fund construction, and what we look for in our investments. By giving founders this context, it helps offset the "black-box" feeling and hopefully creates a level of transparency and trust from the start. From here, it's more natural and easier to discuss whether or not a formal partnership makes sense. Equally, I like to understand how the founder would like to run their process and what they are looking for in an investor – this is absolutely a two-way street given the long-term commitment under consideration.”

How Charles Hudson @ Precursor Ventures helps founders assess fit

Founders pitching a company that is out of scope for a fund is a waste of time for everyone. To avoid this, Charles Hudson from Precursor Ventures shares his investment criteria with founders upfront to help them self-assess if they’re a good fit.

Here’s more from Charles:

“One important thing is clearly sharing your investment criteria so that folks can better self-assess if the company/round is going to be in spec for the firm. We share the following with folks before we even meet to get in front of that. Assuming a company is in spec, I've met with them, but am going to pass, here is how I approach my pass email:

• I thank them for their time because it really is something that I value and recognize their time is a limited resource.

• I try to give them as specific reasons as I can for why I'm passing, while being succinct. I try not to give people more than what they asked for - I focus on the most important reason why we are passing, not all of the reasons why we are passing to keep things focused. Not everyone wants to hear why you don't like what they're building.

• I wish them the best with their raise as I really do hope they are successful, regardless of what we decide to do.

I have some standard language I use as a base but always customize each pass based on the specifics of the company, what I learned from our interactions, and how I genuinely feel about the pitch and how the founder presented the opportunity. Here are a couple of recent examples (company specifics redacted):

It was great to connect with you and learn more about the business. I gave it some thought and while I think the problem you are tackling is interesting and I identify with the mission, I just can't get comfortable with the level of competition in your market based on what I've seen so far so I'm going to pass. Thanks for the time, wishing you the best going forward.

I appreciate the opportunity to connect with you and learn more about what you're building. I think you are impressive and have some good ideas but I'm stuck on the business model. I worry that it feels like the business model is a little too indirect and it might not work given the gap between the value prop around the product and how you can monetize to build a really big business. I'm going to have to pass for now but appreciate the look and wish you the best going forward.

How Julian Shapiro @ Julian Capital passes “well” on founders

The golden rule for passing: Treat founders how you would like to be treated. Julian’s experience as a founder has influenced how he approaches passing on founders as an investor.

Here’s more from Julian:

"If I pass on a deal, I'll do a few things:

(1) I try to pass quickly

(2) I don't sugar coat why I'm passing so that they can see how VCs think

(3) I try to be helpful with intros to investors who are likely a better fit than me.

This is not because I'm trying to be strategic and build a reputation as a super helpful VC. It's because it's the right thing to do and it's how I would have wanted to be treated when I was pitching. I really disliked being ghosted when I was pitching.”

How Nikhil Basu Trivedi @ Footwork is actually helpful in pass emails

As mentioned above, “good” pass emails are genuine, specific and helpful. Here’s an example of a pass email Nikhil sent a founder that checks all the boxes. He includes details on what he likes, his questions/concerns, what he thinks is critical for the success of the business, and a note to keep in touch leading into the next round (but doesn’t expect it).

Here’s an example of a pass email from Nikhil:

Hi, [redacted - founder name].

Thank you for the follow-up. I really appreciate the in-depth email and overview memo. I read all of it this morning. Here's where I am on the [redacted - company name] opportunity:

What I Like:

• A service that can meet latent [redacted - market X] demand where people who really need it are already spending time + can be more affordable to them

• Early signs of customer love as exhibited by, repeat usage, nps, [redacted] engagement, etc.

• Founders with [redacted - market X] + tech backgrounds that have been tinkering in the space for a while

• Chance to scale to $100M+ in annual revenue with strong margins on just 70K+ customers, and make a dent in one of the most important problems of our time in the process


• Can you more efficiently acquire patients than a traditional [redacted - market X] marketplace / [redacted] model? This feels like a fundamental part of the "bet" here, with the [redacted - market Y]-focused nature of the product, but the proof points are still early. Would love for you to not be reliant on paid social to scale -- probably the single biggest thing that keeps me up today. Know you are working on this through partnerships with [redacted], being [redacted], and more, but want to see more proof here.

• Can you also engage customers for a longer duration than [redacted - market X]? Again, feels fundamental to your success if you get this right, but proof points are early.

• Will you command a premium multiple if you succeed, to have the enterprise value to return multiples of our fund? When I look at [redacted] and others, I worry that the markets will continue to be very unkind to traditional marketplace models in [redacted - market X]. So having a story, to the two questions above, about 1) more efficient CAC, 2) higher LTV, and 3) defensibility will be critical, especially if there's a bloodbath for all the cos that are currently worth $1B+ in the private markets when they face the reality of multiples at exit.

• On point 3 above, feels like you have to execute on the moats you outline in the plan.

Next Steps:

• Unfortunately I can't see us getting there on this round, with the above questions. I thought about it this weekend, and was going to send you a note yesterday, but wanted to wait for your follow up so you had a chance to sway me otherwise.

• I would love to remain in touch, if you're open to it, to build a relationship after this round and before the next round.

Hope this feedback makes sense. Congrats on the term sheet and hopefully multiple more options this week. I will be rooting for you and your success.

How Weekend Fund “closes the loop” with the referrer

Our internal workflows at Weekend Fund help us run an efficient process and “close the loop” with the referrer of the deal. Here’s a part of our workflow (more about our stack here):

  • We automatically create a Slack channel for every company we’re meeting where we prep questions before every pitch call, debrief, diligence, and ultimately come to a decision
  • Our “seven-day SLA” Zap goes off in the channel seven days after the deal entered our pipeline reminding us to get back to the founder with a decision if we haven’t already
  • We close the Slack channel only after we investor or pass, and “close the loop” with the person who introduced us to the founder

Much of our deal flow at Weekend Fund comes through introductions. If we pass on a company, we share a copy of our pass email with the person who introduced us. This gives them transparency into our decision-making process, shows gratitude for the introduction, and builds trust that future introductions will be managed respectfully.

Here’s an example of a “close the loop” email we recently sent a referrer:

Hi, [redacted - referrer name],

Thanks so much for the intro. Truly enjoyed my convo with [redacted - founder name] and this opportunity, but couldn't get around to it.

Below is what I just shared with her for transparency, but I'm also a little stuck on the valuation/cap. Respectfully, [redacted] felt a little high pre-launch/product for us although I realize others have different fund models.

We also connected her with [redacted - investor name] and [redacted - investor name] – they could be useful partners. :)

Hi, [redacted - founder name]!

Thanks for taking the time to share what you're building at [redacted - company name] with me! Your experience from [redacted - prior company] is very relevant here. Also, smart to work with brokers to acquire both sides of the market.

That said, I'm afraid we'll have to sit out this time around. Transparently, we're unable to come around on supply-side acquisition at this stage of the business. I can resonate with the value prop, but unsure what the funnel will look like in practice (i.e. of the people that agree, how many will follow through on a sale?). I'm also slightly stuck on the "why now?" here. I've seen the lack of supply in certain markets with wealthier/less price-sensitive buyers (like Miami!) but market ebbs and flows are normal.

I'd love to stay in touch here as you go to market. I LOVE this space and genuinely want to see this work. If I can do anything to help, please ask. :)

If you’re a new fund manager, thinking of starting a fund, or just curious, subscribe to Signature Block if you haven’t already. If you think this might be useful for emerging managers, share on Twitter.

Lastly, let us know what topic you’d like us to cover in the next edition.

Until next time,
Ryan and Vedika from Weekend Fund :)

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