Navigating Feedback in Venture Capital: Lessons for Founders

Welcome to the Venture Capital podcast. Go to www.vc.fm. we got a new URL. Don't tell the wifey how much it cost. And we are ready to roll. This is season two. We've been offline for a little bit. Some people, a couple of my friends at least, were very worried about us. They're like, what happened?

Are you still alive?

What happened?

Did Peter die? And the answer is yes.

The answer is we just got busy. Where I got busy?

We got busy.

The founder 100 took a lot of that out of us. Or out of me.

Yeah, mostly, John.

I was like, I can't do this. I can't work this hard for free. For those of you that don't know and you're not from Utah, we did an event in June that was the top 100 founders in Utah.

And it was the number one top event of the year.

Yeah. I mean, it was based on Paul Alstrom, Once Upon a Time with vspring Fund, which is no longer around, did an event that I thought was phenomenal. One of the best networking events called the V100. So we partnered with Paul Ulsterman, Mark Tolles from Tech Buzz News, and we started it back up.

Yep.

And people would not leave.

It was great. Yeah. So what we did is we had the top 100 founders in Utah as voted on and decided by not like a panel of VCs, like a lot of competitions, but by founders themselves. So by founders for founders. And so anyone could submit a recommendation, a nomination. And then those that had been nominated were the ones that did the ultimate selecting of the top 100. And so everybody that was there, like, everybody was like a super interesting person to connect with and doing really interesting things. It was great. It was a really fun event. You did a great job pulling that together, John.

We did a great job. I think in November we're going to. I know I talked about doing this in September, but I think November we should do an event in Utah for the. Just anyone who's raised more. More than a million in the last 24 months.

Sure, let's do it.

So before you. Before you showed up, I was making calls. I was thinking if you went to, like, K1 Racing. Okay, that'd be kind of fun.

That'd be fun. You know what else would be fun is going out to the racetrack out in Tooele and race real cars.

Okay. How much is that? Would that cost us?

I don't know.

500 a person.

We got to find some sponsors and then it'll be free.

500 a person times 100 people.

You got 50 grand putting this out there to all those service providers interested in sponsoring an event so John and Peter can go race cars around the track with top founders in Utah.

I feel like most up. Most of them tap out at, like, 1500 to five grand. Yeah, I don't know, but that would be a pretty cool event.

It would be fun. Just saying.

All right, well, Peter, you have a story for us, right?

I have a story. Well, so here's the thing. I got an email today from a founder, and this was a founder where we'd kind of gone back and forth. There were some, like, really interesting strategic reasons for us to be interested in their company. And then things kind of changed with their fundraising path. They decided to do a different round than what we had originally discussed, and it no longer really fit for us. And so we were going back and forth internally, and we kind of were dragging our feet kind of, let's see how this round fully comes together and plays out. And eventually he reached out and he was like, hey, look, I feel like you guys kind of ghosted me. And I was like, you know, you're kind of right. We kind of did ghost you. And, like, I felt bad about that. And to his credit, he was like, look, he's like, it is what it is, right? Like, water under the bridge. But I would love to get some feedback, you know, operator to operator. And so sent me this message, and I thought about it for a while, and I was like, yeah, I deserve. He deserves to hear back from me. So I sent him a message and apologized for not being as communicative as we should have been, and then explained why that was. It was just like, it kind of threw us for a loop, and it was hard to figure out what we wanted to do internally, and that led to delays. And then I gave him some very frank feedback about his startup and the way that he had run the process. And, you know, honestly, it was one of those things where, like, we've talked about this on the podcast before. Like, founders, will they get a no from a vc? And they'll be like, hey, but can you give me some feedback? And, like, there's no prize for giving feedback.

It's dangerous.

It's dangerous, right? Like, and invariably, like, most of the times I give feedback, like, founders are just, you know, they want to argue with me and why I'm wrong, and.

I'm like, like, like myself.

Like, it's just too late, right? Like, the decision's been made, and you arguing with me Makes me less want to like give you feedback in the future. Right, but he didn't do that. And, and I, you know, he responded and he was like very professional about it. He was like, hey, it took me a few days to get back to you because I really wanted to provide a thoughtful response. And you know, like he, he owned kind of the, the feedback. He didn't get defensive. He didn't, you know, try to justify his position. He was just like, you know, hey, look, I heard the feedback, I accept it. I don't know if I'm going, you know, he didn't say that he's going to implement it or that he thought I was right, right, Necessarily. And that's fine. But it was just like super refreshing. And so I guess, like, the story here that I just wanted to highlight is that if, if you're a founder and you're asking one like you can ask for feedback, right? That's fine, but just be like gracious when you hear it, right? And know that like as the vc, if the VC actually takes the time to give you feedback, they're kind of going out on a limb because to your point, it's a little bit risky, right? And if they're doing it, they're doing it because they genuinely like, care and want to be supportive of your company, even if it's not necessarily a fit for them anyways. It's a really hard thing to do though, like to take feedback and not get defensive. Right.

But they're also not asking for feedback. They're asking, if I fixed, what part of my business will you then write the check? They're not asking for feedback per se.

So this brings up a good question. And another VC that we both know had a conversation around this where I turned down a founder recently on their fundraise and I kind of explained the reasons why and I shared those reasons with this other vc and he was like, that's the worst kind of feedback. Because the feedback was essentially, this is not a fit for us and our strategy. And he was like, that's like totally non actionable feedback. And I took the position, like, if I'm a founder, I would want to be told that like, the reason they're passing doesn't have anything to do with me. Right? Like I didn't fail. It's really just like either they failed or like they don't see it or like, you know, it just doesn't fit for them or whatever it might be. And this other VC was like taking kind of your position, which is Maybe the feedback is better if it is actionable so that it's something that they could actually do to come back and pitch to again. And I guess maybe, like, the lesson in there, as I think about it, is that if a VC gives you feedback that's actionable, they probably are still interested in your next round. If they give you feedback that's non actionable, then that door is probably shut and you should move on.

So you're saying I should reapply to Y Combinator?

Probably.

Okay. Because they sent me a feedback email. I applied once, and it was.

Was it actionable? Because that's the question. Right.

50%.

Well, it's not a hundred percent.

Although I think that 50%, I think they thought I was screwed and it would never get.

Get resolved.

Get resolved, and it got resolved.

So you're gonna reapply?

No. All right, well, Y Combinator is a mixed bag for me.

Okay.

I feel like I've outgrown it.

You love and hate them. No, I just feel like you're too good for them.

I feel like the program has become heavily diluted.

Yeah, just a lot of companies.

A lot of companies.

The problem is who's better, who does a better job, what accelerator or incubator out there is better.

I think what makes Y Combinator more interesting is if they became more selective. And I think recently they've had trends where they've let, what, 100 to 400 people in a class?

Yeah. But their acceptance rates are still, like, extremely low. Even with that many people, it's what.

100 right now, it's what, 150,000 for 7%, which sounds really expensive.

Yeah, but you get the YC brand, right?

So the question would be, I mean.

It'S like going to Harvard. Is Harvard worth paying? Shelling out 200 grand?

It's all about the total ROI. As a founder, at the end of the day, where is my company at from? Going through there.

Yeah.

So we should do. We should.

I don't know. I bet if you look at the data, if you go through Y Combinator, your likelihood of raising another round has got to be, like, exponentially higher. And your likelihood of if you raise some capital, your likelihood of raising more capital is higher. And the more capital you raise increases your likelihood of success.

But if I was at VC again, having gone through the YC application process, I was not that impressed with the process. I mean, it was a very smooth process, but nothing where I looked. Having gone through it myself, you're like, I would be like, this would be A good signal. I. The signal should be zero. Oh, you went to Y Combinator. So what?

You would think that, but that's not the actual case.

And I think when I applied, I feel like I got in. I got in far. And it would have been two things which have very little to do with me. One, a really fancy domain name, potentially. Or others I'm friends with one of their top 10, I think, outcomes, and I think they wrote me a personal recommendation.

Hmm. That's pretty good.

So I don't know if I had to fight like everyone else had to.

Fight, but would you argue getting those things was part of the fight? Because getting those things wasn't, like, easy.

Oh, it was an easy text. Hey, I'm applying. Will you nominate me? Sure.

Yeah. But how many years did you spend developing that relationship? Right.

I'm a relationship person, so.

No, I know, but I'm just saying, like, it's.

You never know whether it was hard.

For you to do it or not. It was a hard thing to pull off. And that's what they look for. That's what VCs look for. That's what I look for. I look for, like, people that have done hard things. It doesn't mean it was necessarily hard for them.

Okay.

Right. In fact, if anything, that's a bonus point. Like, if. If you can demonstrate that you can easily do things that are extremely hard for other people, that's, like, insanely impressive. Right. I want to back people that have insane, like, unfair advantages.

Oh, for sure.

So, anyways, so back to feedback. What do you think? What do you think VC should do?

I think, as a V. So when I was with the Utah Angels.

Yeah.

And we ran, you know, a bunch of angel investments, and when I ran boomstar, which was an early stage fund.

Yeah.

Generally my focus was, how can I help build them? Was always my answer. In fact, it was some of the. One of the greatest parts of my life professionally, because I felt like my job was, I'm going to help someone, and in a year or two, they might actually be ready for funding, and then we can see what happens. And I would have personal metrics at the time. So instead of giving feedback, it was. I don't know the answer, but I know some people who might be able to help you. They might help you get your first sales. And there was. There were several. Like one of my friends, I introduced to Ben Diltz, the founder of Lucid, and he made tens of millions of dollars just off of that introduction. And then he did another startup later, and I introduced him to Adobe and there were many opportunities like that where you could drastically change someone's life. So that's, that was my focus, was not giving feedback and I think it was also much younger in my career.

So it's just being helpful.

Just be helpful.

Yeah, Yeah. I think part of the challenge is that as a VC, you know, jokes about VCs not working hard aside, like there's not an. I would love to sit down and spend like hours helping every startup that I turn down, but there's just not enough time. Right.

But you're also at a different part of your career. You're a principal, not an analyst.

Yeah.

When you're an analyst role, I think that's part, part of what your job is, is to be a community builder.

Sure. What if you're smart? Most analysts don't do that, but if you're smart, that is what you do. I agree.

I mean, I think my network from being on the VC side of the table.

Yeah.

Like, has been one of the most beneficial things I've done throughout my, my career. And when I look back on my college days, the only benefit I see from college days was I met John Richards who got me into that world and learning about supply and demand shifts from an economic standpoint, that's the only.

Thing you took away from college.

The rest of it was a joke.

Supply and demand and John Richards and.

Basic accounting classes that were valid.

The rest is an income statement.

Super valuable. But the rest was a joke. So I feel like as far going back to the core of this message is as far as feedback, I think as a founder, just recognize it's super awkward for a VC to say anything if they are hesitant.

Not just awkward, it's not really awkward. It's just like there's no benefit.

There's so many people, you're just used.

To so many feedback. There's so many downsides. There's so many downsides to giving feedback. Like, the worst is you give feedback, it pisses off the entrepreneur, they end up crushing it. Next round comes around and they're like, screw you. I'm not gonna carve you into this round because you said blah, blah, blah about my baby. You said my baby was ugly, so screw you. And like, as a vc, then it's like, great. You just lost out on this great opportunity because you were giving like really transparent feedback. Right. And frankly, that's the other thing that I liked about this guy's message is that at the end of it, he was like, he's like you know, I'm glad that you still think what we do is interesting, because I genuinely do. And he was like, I hope we can find a way to work together in the future. And I was like, great. Right? Like, the depth of maturity I was just really impressed by. And so, like, I'm more inclined now to be interested in his next round. And so I just think as a founder, like, ask for feedback, sure. But be, like, really graceful in the way you. You accept it from them. It doesn't mean that you accept it from a perspective of, like, oh, yeah, you guys are totally right. That could be wrong. Right. Totally wrong. And especially if it goes against, like, like, your core vision and the thing that drives you. Right. But at the same time, it doesn't mean you have to, you know, hate them or be a jerk or whatever. Like, it's all about empathizing on both sides of the table. Right.

Have you ever thought about. Last question for those who want to be fund managers? Have you actually thought about writing detailed responses as far as rejections?

Like, how to reject, like, very thought.

Like, my email from Y Combinator is one of the things I think I'll remember my entire career. The way they handled it, like, that's the part that impressed me was it wasn't. This is before all the LLM stuff that came out.

Yeah. The.

The points I couldn't disagree with. Like, I thought they were very solid points.

Yep.

I felt like they spent a lot of time writing my rejection email.

Yeah, no, your rejection email is great.

And should we publish?

I don't know. Sure we should. I think the challenge I always have when I write rejection emails is, is it better to write a long, detailed, thoughtful, you know, blah, blah, blah. Here's the reasons we, you know, didn't work for us. Here's the things we liked. Here's, you know, whatever. Is that really helpful to most founders, or would they rather just have a quick no of hey, you know, loved meeting you? Business isn't a fit for what we're doing. You know, wish you the best. Right. I don't know. I kind of go back and forth depending on the situation and the individual.

Tricky. Very tricky.

And I'm sure that Y Combinator does not take that time for every single applicant. Right. They probably take it for every applicant that made it as far as you did. Right. And that's probably a relatively small selection.

Still a lot of emails.

Yeah, that's still. That's true.

And maybe they take turns write it. You know, hey, here's our thoughts.

Yeah. Yeah, I don't know.

But I was impressed. It was pretty chatgpt days.

Yeah. And I've heard from others, same thing. Right. That the rejection. The way Y Combinator handles rejection is. Is really impressive. So.

For sure.

But I think it's a good point of maybe. Maybe. Yeah, maybe I should write an article around. This is how you structure a rejection email if you're a vc, and this is how you accept a rejection email if you're a founder.

Have you ever thought about putting rejection emails the general criteria that you're looking for? Or is that. Does that paint you too much in a box?

For us, it paints us in a. In a bit of a box. And the reason I say is because we don't. We have a very big box.

But couldn't you say, hey, here's the different types of spaces where we've looked at and what it might look like. For example, if you're looking. If you're investing in a company only based upon revenue, you're typically looking for 17% growth month over month. Right. Or more.

Sure.

As. Just as a generic example, hey, you're a freemium model we're looking at.

Honestly. Like, the other big problem, though, is that, man, sometimes you pass on a deal because of the team and that, like, there's just. There is no way to provide that feedback, really. Like, you have to have, like, a good relationship with that person in order to have that level of conversation of, like, look, we love the business, we love the product, we love the market, we love the structure, we love the valuation. We just don't love you.

That's what you need to do. You need to break them up.

But you're not going to, right? It's not your job.

Some do. And I would not recommend it as a vc.

No, no. Your job is to find the companies that are going to ultimately win, not try to create them. Which is also, like, the thing that most founders don't understand when they're like, we need an NDA because we don't want you stealing our business idea. It's like, I'm not here to steal your business idea. Like, I'm looking for the people that are going to crush it on an amazing idea and back them. I don't want to run it. I'm not the right person to run it.

Right, you are, Peter. You should.

Yeah, maybe you should.

No, I'm too busy.

Too busy building your own empire.

One Lego at a time.

Yep, that's right.

All right, guys, well, thanks for watching. If you have more questions, specifically on this topic or any other topic, comment here below. Go to VC FM and you can also follow us on all of our social channels.

Do it. Thanks everyone.

Thanks for watching.