"The No": Making the Most of Getting Rejected

by Amanda Peyton

categories: Competitions and Fellowships, Funding, Venture Capital

Published June 23, 2009 @ 07:46AM PT

When you get to the point where you're ready to present a business plan to investors, be prepared for an onslaught of rejection.

The idea generation and executive summary process can be very encouraging - it's relatively easy to find people who are willing to give you feedback on your ideas.

Getting people to part with their money, on the other hand, is incredibly difficult. Educating yourself on the what type of investment is right for your business will likely save you from a series of meetings with investors who were never right for you in the first place. Remember: investors are not all equal, and finding the right type of investment will add value beyond providing needed cash.

But first, you must learn to deal with rejection. Some of the most successful, seemingly no-brainer investments get rejection after rejection - for example, Bessemer Ventures said no to FedEx SEVEN TIMES. Rejection is a reality of the fundraising process.

Here are three ways to make the most of "the no":

1. Proactively ask for feedback

I have heard/read many stories from investors about entrepreneurs that flip out after hearing "no". Not every investor (and many times, only a small sliver) will "get" what you're trying to create - that is a reality of the investment process. Say thanks and see if the investor has any feedback for you.

Ask them what they don't like, and how you can improve your product. Listen to criticism and, if you think it's valid, incorporate the feedback for your next presentation.

2. Try to separate yourself from your business

There is an inevitable emotional attachment that you'll develop with your business and in the startup world the lines between personal and professional are so blurred that it's tough to distinguish between the two. When fundraising, put in extra effort to establish boundaries between your business and yourself - a rejection from a investor shouldn't feel like a personal rejection (though for many people it does).

3. Keep in touch with potential investors

If someone tells you no, that doesn't necessarily mean they never want to see you/speak to you again (though if you flip out at them they most definitely will never want to speak to you again). Sometimes an idea is not at the right stage for an investor (too early or late stage). Make an effort to keep in touch with investors you like - they might have passed on your current deal, but could very well be interested in the next one.

Persevering in the face of rejection requires a unique mix of confidence and modesty. You should be confident enough to believe that a pass from an investor doesn't mean your idea is dead, but modest enough to ask for feedback and know that you are not the only person who really "knows" the business. If you work on making the most of rejections, you'll soon notice that hearing a "no" might actually be beneficial.

For more on dealing with rejection - Y-Combinator founder Paul Graham's piece from Aug. 2008 has some great advice as well: http://www.paulgraham.com/fundraising.html.

This column is part of Amanda Peyton's "Bank It: Ca$h For Your Ideas" series about how to be successful in business plan competitions and the fundraising process in general. Amanda is an MBA student at MIT Sloan and one of the lead organizers for the MIT $100K Business Plan Competition. She is also on the executive committee for Sloan Entrepreneurs for International Development (SEID).