The Cryptic VC’s Guide to Saying “No” on Investments

VCs guide to saying no

by William Hsu, Co-Founder and Managing Partner at Mucker

VCs say a lot of cryptic stuff when we pass on an investment – partially because it make us appear smart, but mostly because we simply don’t want to be assholes. So, we try as hard as we can to not simply say “no,” when we actually have no intention of giving away one cent. Instead of being straightforward about what we actually mean – “I hate your idea, we are not investing,” etc – we say something meaningless like, “I prefer gluten-free cookies.”

I don’t know how many times I’ve run across entrepreneurs (in and outside of our portfolio) that excitedly tell me about some earth shattering mind meld they just had with an investor, but when I dig into the actual conversation, I quickly realize they just got passed. So to save everyone some embarrassment, and to save myself from having to change my incorrigible behavior, here are some of the most common ways I tend to pass without ever having to say that unfortunate, boring word, “No.”

“Too Early”

When I don’t know, I say “too early.” When the entrepreneur is a bigger shot than I am (90% of the time), I say “too early.” When I think the idea is brilliant but I’m afraid of being wrong, I say “too early.” When it’s some sort of social media thing, I say “too early.” Basically, I find as many opportunities to say “too early” as I can because that’s what I see cool VCs doing.

“Conflicted”

It’s true that I certainly won’t invest in direct competitors to an existing portfolio company, and most VCs are the same. However, being “conflicted” is such a brilliantly simple and elegant way to pass on an investment. Case Closed. Nothing to see. It leaves no room for additional questions, hurt feelings, or even a future tryst. I enjoy saying “conflicted” to all the companies that I have no chance with.

“Over concentrated”

Because VCs are lemmings, and because most trends do not have a definitive pot of gold at the end of their rainbow – “nanomaterials,” “cleantech,” “drones,” “AR/VR” – long term successful VC franchises do not over invest in a single thesis for the fear of getting caught in the undertow of an eventual cresting wave. Because it is an entirely rational and productive way of saying “it’s me, not you,” it has now become an entirely irrational and meaningless way to pass on an investment.

“I will follow, not lead”

When I was 14, I asked a girl to the prom, and she essentially told me, “I’ll go to the prom with you, but only if the head cheerleader approves.” Is there a chance that you will end up on a date with this person? Yes. But do you really want to bother when this person seems to outsource major love life decisions to someone else? Be offended, very offended. And run the other way. . . to the head cheerleader. No pain, no gain.

“I’d like to invest in the next round”

Lots can change between today and two years from today. VCs change jobs. Funds shut down. Companies pivot. Unicorns are born and killed. VCs don’t promise to invest in the next round. There are no forward contracts in VC land. Don’t believe it.

When “No” Would Have Been Nice…

On the other hand, there are many, many reasons that VCs pass on an investment. Some of those reasons are crappy and thoughtless – but that doesn’t mean they are wrong. I wish I had the integrity to verbalize the real reason more often and that more entrepreneurs had the fortitude to understand and even appreciate the truth. Even when it’s inconvenient, when it exposes each other as amateurs. Here are four of the most common reasons for passing but never actually said by most VCs.

“Not interesting enough”

It might be a great business. You might have a lot of traction. But in the end, we all want to work on interesting and world changing ideas that helps us achieve our version of historical immortality. (It’s nice to be called the first investor in Apple, Cisco, Sun, Netscape etc.) Making money sometimes doesn’t mean so much when you already make millions of dollar a year. The cynic in me also knows it is more important to have an interesting investment to brag about at cocktail parties than a boring one. Interesting sometimes trumps steady.

“Not smart enough to form an investment opinion”

VCs are not experts in anything, really. The times we sound smart is because we plagiarized from the entrepreneurs we talked to. More often than not, when an idea is completely out of left field (not AI, not VR, not mobile SAAS, not whatever is being circulated in Twitter), VCs simply do not have the capacity to evaluate the idea. We don’t have the time to do the proper industry research and reference calls. We haven’t had interaction with other smart founders in the same category to have formed an investment thesis. So we pass, because we are pretty sure you are a lot smarter than we are.

“Too many scars from the category”

To be wrong in an investment thesis once is the occupational hazard; to be wrong twice, we actually have to admit we are stupid. VCs don’t like the possibility of being stupid, so we never invest in the “same” company twice regardless of the reason for the initial failure.  If you see a VCs that invested in a failed barter exchange in the last cycle 10 years ago, and you are building a barter exchange? Stay away.

“No fucking idea”

Literally like no fucking idea. It’s like explaining a new planetary terraforming technology to a software investor. No fucking idea.



Editor’s note: Hopefully this somewhat “tongue-in-cheek” list helps entrepreneurs decipher the often frustrating mind games surrounding the fundraising process. For more tips on how to actually get a “yes,” subscribe below for future insights into VC.





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