Investors Said No, Now What?

**Brad** (0:00)
Investor spends two minutes writing the email, and then later hears that you've pivoted your entire company because of it, right? Not a huge signal of conviction.

**Michael** (0:13)
Fiction.

**Harj** (0:20)
Hello, this is Michael with Harj and Brad. Welcome to Inside the Group Partner Lounge.

**Michael** (0:25)
So as YC Group Partners, we find ourselves repeating the same, often seemingly obvious advice to founders over and over again.

**Brad** (0:32)
Before COVID, we'd often gather together in the Partner Lounge at the YC office to try to figure out why this was the case, and how we can help startups figure it out faster.

**Harj** (0:40)
Today, we're gonna talk about what to do when an investor says no to investing in your startup. Our saying at YC is believe the no, don't believe the why.

**Michael** (0:52)
Yeah, so to set this up, one thing we end up doing a lot is pumping belief back into founders who have had their confidence shaken by these investor rejections.
And it always surprises us because from our perspective, the founders are the experts on their product, the market, like everything they're doing. They think about it day in and day out, and yet they can have everything sort of shaken by investor who spent 30 minutes with them. And so we want to figure out what's going on.

**Harj** (1:22)
And it's funny because oftentimes at 30 minutes is like over Zoom while like on Slack doing email, right? Like maybe not the most engaged 30 minutes.
So Brad, what do you think the lies that founders are telling themselves? Like when a founder gets a rejection from an investor, the polite investor who bothers to write why, what do you think's going through a founder's head?

**Brad** (1:46)
Well, the first thing going through the founder's head is this investor is an expert and they are telling me the truth in this follow-up email that they sent me. I follow them on Twitter and they tweet about my market all the time.
They worked at a company in this market at some time in their past. They work at Fancy Fund X, therefore they know everything about what I'm doing and whatever they told me in that rejection email, that must be the reason and the problem with my startup.

**Harj** (2:20)
Which is so sad. I mean, how many YC applications do we read and what percent of the time do we raise our hand and say, oh yes, I know everything about this space. I'm qualified to judge this idea.
It's like, I think under 1% of the time.

**Brad** (2:35)
Yes, yeah. It basically never happens. I mean, investors may have a passing understanding of what you're doing, but almost by definition, if you're doing a startup, there's something new and novel about it. And you are the expert, not the investor. And so whatever the reasons they're giving are not like canon.
They don't know any more than you do. And they almost always know much less than you.

**Michael** (3:03)
It's like that saying, right? It's like, oh, what is it? Like, a little bit of knowledge can be dangerous. It's like, I think investors end up knowing just enough to be dangerous.
And it's a job where you're often selling, so you're very confident in sort of how you articulate your opinions.
But like, yeah, you don't actually get the deep insights because you're not like in it building the thing. Just why investors have like a 90% failure, right? Like most investments are bad decisions.

**Harj** (3:32)
I think we see this in practice too, because we will see founders who will pitch to investors, get knows, apply to YC, get into YC. And those same investors will say, now I want to invest in your company and nothing has changed.
No fundamental thing has changed in that company, yet the investor changes their mind. That doesn't sound like the opinion of an expert, right?

**Michael** (3:57)
Like.

**Brad** (3:59)
Sounds like a herd animal.
So you get this rejection and you think, well, I'll go back to them. I'll convince them that they're wrong, that they misunderstood something. And if I say the right thing in the follow-up email, or I can somehow get them on another call and address their concern, everything will change. The words themselves don't mean a whole lot. It's a reason, but it doesn't mean it's the reason. And it's not always up for actual debate. It's never up for debate really.

**Michael** (4:34)
So you guys have had this situation too, where it's like, a founder comes back, you say, oh yeah, like the investor said that if we were in like this market instead of this market, we like, you know, they'd be a lot more excited. So we think we're gonna, you know, go after that.