A short spoken advice segment (YouTube video) by Charles Hudson explaining how founders should interpret and act on investor feedback during fundraising. He argues that many investors give a facile "reason" for passing rather than the single core reason, cautions founders against overreacting to individual comments, and recommends paying attention to patterns in feedback and prioritizing the investor's decision over any single explanation.
Chapters
When fundraising. One of the biggest challenges I find founders have is making sense of the feedback that they get from investors. Once upon a time, investors would just provide a binary yes, no and decision on an investment. But now we live in a world where investors often feel like they should provide you with some feedback on why they're passing. In some cases this feedback is useful, in other cases, I'd argue it's a distraction. So one thing I will say is we now live in a world where I think most good, conscientious, founder friendly investors feel like they owe you some context on their decision beyond a simple yes or no, we're not moving forward decision. But one thing I've seen, having worked with hundreds of founders, is many investors will give you a reason for passing, but it's not the reason. And one of the hardest things to do as a founder is, is to differentiate between those situations where you're being given a reason, as in one of the several reasons that someone's not investing versus the reason, which is the one core thing, that if it were different, an investor might make a different decision. So that begs kind of the obvious question. Why don't investors tell you as founders, the reason as opposed to a reason? There's lots of reasons. Sometimes the reason is simple and that the investor just doesn't think what you're doing is interesting to them. There's nothing wrong with the business. It's just not something they want to spend time on or they find interesting. Sometimes the investors had a recent experience in your category that informs how they think about opportunities and makes them uninterested or unwilling in making another investment. Sometimes investors legitimately just need to see more. They want to see more traction, they want to see more evidence. And one of the more awkward situations is sometimes there's something about you as the founder that they don't find compelling or that they feel like will get in the way of being successful and they're just, just unwilling to have that direct, frank conversation with you. But I would argue many investors, when they look to say no to an investment, are looking for the simplest reason, AKA a reason that's hard to refute as opposed to the core reason. Why do I bring this up? It's because if you get feedback from investors, I would encourage you not to over rotate and redesign your entire pitch every time an investor provides you with feedback. Be patient. Take a beat. Listen to what investors are telling you in the entirety before you make big changes to your pitch story or even your business. If everyone tells you that they have questions about the business model, that might be evidence that in order to fundraise, you need to go get some evidence that the business model actually works. If everyone's telling you that they have questions about the product or the story of the market, there might be something in your storytelling that needs to be improved. But I think the most difficult thing to do is to react in the moment to every piece of feedback and tweak your story, pitch, or approach based on what every individual investor told you. So my advice to you all is pay attention to feedback that lines up in the aggregate. And also just understand that people have to tell you a reason. And even if you address the reason that they told, it doesn't mean they're so going to get to yes. So the most important thing that investors will tell you is not the reason why, it's actually the decision. Sam.
