The 48-Hour Rule

20 Mar

The venture industry is famous – nay, infamous – for the long goodbye. As a group, we venture capitalists typically squirm in our Aeron chairs at the idea of giving a firm NO to a company we choose not to fund. There are myriad reasons for this–some sensible, some less so. The most cited justification for the “squishy no” has to do with the fear that that entrepreneur may come up with something better on his or her next go-round and, God forbid, said venture investor might miss out on the next Google/YouTube/Skype/insert-your-startup-home-run-deal-here investment.

To be truthful, this is not that bad of a justification, to which any venture investor who has given a firm ‘No’ to an entrepreneur can attest. Rejection can be a hellish blow. No matter how couched it can be in constructive and measured language, it’s difficult to de-couple the personal rejection from the one aimed solely at the company seeking funding. After all, one of the key assets of any venture deal is the team itself; so, how then can one reject an investment in a company and there not be an implied rejection of the team inherent therein?

A decision was made long ago that, as a firm, we made it a point to offer prompt responses to pitches and submissions from entrepreneurs–particularly when that submission involved an in-person meeting, call or referral. We try to be as disciplined with cold, over-the-transom submissions, but the sheer volume of those requests are harder to sort through. I think I speak for most venture investors in that regard. We try, but we do not always succeed.

On balance, I think it’s been the right decision but it’s not been smooth sailing. There have been more than a few occasions when I penned a long email to an entrepreneur calmly explaining my firm’s position not to move forward only to receive a rant about my “not getting it”, casting aspersion as to my lineage, my intelligence, and basically insinuating that my parents commingled with livestock. Serves me right, I suppose. While there has been some blowback to our Radical Honesty-esque approach, I think the decision to lay out the rationale for where, when and why we might invest in a company has led to many more referrals from grateful entrepreneurs than sour grapes from those that couldn’t handle it. What sustains me is the notion that offering clarity, and some honest advice, to an aspiring entrepreneur is a function of what a good venture investor should do. Capital is but only one tangible aspect of what a good VC offers. The intangibles include relationships, advice, support, and a host of other things.

All this being said, the truth is that entrepreneurs are too often insulated from some uncomfortable realities about the fundability of new enterprises. Put simply, the vast majority of companies seeking funding will not be successful in attaining that funding. Those companies will fail. Frankly, most of those companies should fail. It is the nature of things and has been a central aspect of venture capital since the very beginning.

For entrepreneurs seeking funding, it behooves one to keep in mind the old car salesman axiom that deals happen within the first 48 Hours or they typically don’t happen at all.

While there are always exceptions to every rule, I find that maxim to be fairly accurate and directly applicable–not simply for raising venture rounds, but for life in general. The 48 Hour rule applies equally to job interviews, mortgage applications, and–dare I say it–even dating. [If you have doubts, think about the last few jobs you were offered. I would wager that those employers moved quickly. You may not have had an offer in 48 Hours but more likely than not, you heard something within 48 Hours of the interview indicating things were moving forward.]

So, if you are an entrepreneur and if you’ve pitched a venture investor and he (or his firm) has not gotten back to you in 48 Hours with some response (next meeting scheduled, due diligence questions, follow up questions, requests, etc) he’s not interested. Move on.

Again, refer to the 48 Hour rule. Human nature would appear to dictate that something that stirs the imagination would compel action within a short time frame. A venture investment is an undertaking. There is a process involved. It’s laborious. That would necessitate pushing other things off his or her desk and making time for you. This does not happen lightly.

Remember: when things happen, they tend to happen quickly. If a venture investor has not decided in 48 Hours if he or she even wants to take a next step, he doesn’t. Inaction is a form of action. In other words, doing nothing is doing something–namely, nothing.

For entrepreneurs, the issue is how to handle the “No response response.” Grit your teeth, take it as a ‘No’, and move on. Resist the urge to send a flame mail. Sure, it might feel good for about 10 minutes, but once you hit that Reply button, those sentiments will go away quickly, and there will be a nasty, petty email floating out there for eternity replete with all your rawest emotions on full display, and that display is a 60″ LCD Flat screen. You really don’t want that.

Just slightly less annoying than the “no response response” to many entrepreneurs is the “kick the can down the road” response. It usually contains the phrase “keep us posted on your progress” and gives a vague suggestion that the firm might invest at a later stage or round.  Truth be told, this can often be an honest assessment. We have seen many deals that we liked but, for stage and development reasons, were not appropriate for us. We liked the companies and genuinely wanted to stay in touch. Don’t misread these signals. While it is an impossibility to delineate those firms who truly want to stay in the loop on your company’s progress from those that are simply passing without clearly articulating that, the best strategy is to do precisely what the venture firms ask: keep them posted.

A final point is to embrace these tendencies in venture circles as something a startup team needs to come to terms with. I have seen some start-up CEOs adopt the tactic of trying to “respond in kind” by being, well, taciturn jerks with venture investors. Bad idea. While this post is about the value of understanding the 48-Hour rule, there is also something known as the Golden Rule–he who has the gold makes the rules. At the end of the day, venture investors control much of the capital that you need to take your company to the next step. Being openly hostile to venture investors or imposing false time constraints on them — i.e., “you need to let me know today if you’re funding us…”etc — rarely works. Better to be accommodating and take on a positive demeanor. After all, the venture investors are looking at you as a possible partner and if they already get a sense that you will be difficult, a prima donna, and an overall pain in the arse, the pitch is over before it even began.

As I once said to a ‘difficult’ start-up CEO who tried to impose false time constraints on his deal: “Hey, who died and made you Sergey Brin…”


2 Responses to “The 48-Hour Rule”

  1. Tim Ramsey March 20, 2008 at 1:05 pm #

    I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog.

    Tim Ramsey

  2. Allen Taylor March 20, 2008 at 2:00 pm #

    Nice writing. You are on my RSS reader now so I can read more from you down the road.

    Allen Taylor

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