# Inside the Group Partner Lounge: Investors said no, now what?

**Author:** Harj Taggar, Michael Seibel, Brad Flora
**Type:** Video
**URL:** https://www.ycombinator.com/library/J1-inside-the-group-partner-lounge-investors-said-no-now-what
**YouTube ID:** euZH0tVotPQ

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Step inside the Group Partner Lounge to hear Y Combinator Group Partners Harj Taggar, Michael Seibel and Brad Flora
discuss how you should handle rejection from investors and why you should "believe the no, not the why."

## Transcript

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 uh conviction [Music] hello this is michael with harj and brad welcome to inside the group partner lounge so as yc group partners we find ourselves repeating the same often seemingly obvious advice to founders

over and over again 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 today we're going to 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 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 the 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 an investor who spent 30 minutes with them and so um we want to figure out what's going on 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 to 30 minutes exactly

so brad what do you think the lies that founders are telling themselves like when when a founder's got gets a rejection from an investor the polite investor bothers to write why what do you think's going through a founder's head 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 um they're they i i follow them on twitter and they tweet about my market all the time

um 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 it that that must be the reason and the problem with my startup which is so sad i mean how many yc applications do we read and what percentage of the time do we raise our hand and say oh yes i know everything about this space i'm i'm qualified to judge this idea it's like i think under one percent of the time

yes 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 um they don't know any more than you do and they almost always know much less than you it's like that saying right it's like oh what is it like you know no a little bit

of knowledge can be dangerous it's like i think investors end up knowing just enough to be dangerous um because and it's a job where you're often selling so you're very confident in sort of how you articulate your opinions um 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 rate right like most investments are bad decisions i think we see this in practice too because we will see founders who will pitch investors

get no's apply to yc get into yc and those same investors will say now i want to invest in your company and nothing has changed like 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 no it sounds like a herd animal [Laughter] 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 um it's it it's it's a it's a it's a reason but it doesn't mean it's the reason and it's not always up for actual debate it's not it's never up for debate really do you guys have had this situation to where it's like you if founder comes back you say oh yeah like

the investor said that if we were in like this market instead of this market we'd like you know they'd be a lot more excited so we think we're gonna you know go after that and you're thinking i wish i could explain to you how this is gonna make you less attractive like the fact like because it's it gets to the heart of like investors also are aware they're not experts so if a founder actually like actions on your feedback in sort of like a material way like it makes you less like you're a good investor i think it makes you less unlikely to want to invest you don't

want to invest in someone who is relying on you for product insights right yeah i mean let's let's play this out harj 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 uh signal of uh conviction i think the other lie the founders tell themselves is that the glaringly bad thing about my company

isn't the reason why this investor didn't invest it's the reason that they wrote on the piece of paper so it wasn't i don't have a technical co-founder it wasn't that like i've got negative margins i'm about to run out of money it wasn't that i'm building like a non-software product and like this investor likes investment software it wasn't that like every time i pitched this company to this investor i haven't grown i haven't launched it's not those things the investor said my market's too small i bet it's my market's too small and it's like eh it's probably one of those other things

like it's or at least hey check those other things like if you're checking a lot of those boxes you should believe the why even less maybe investors have a bigger broader view about the market in like an abstract way like they have like they can talk about you know like big picture census data or something but like you should always be able to sort of inform them with anecdotes from like real users like anytime someone says

well i don't know don't like 60 of us consumers not want to purchase blah blah blah you should say well actually like i've been spending the last month with like um uber drivers and actually like they have like they're like loving our product because of like these reasons like it's like um like and that's when i get worried if a founder can't come back even if i feel like i better understand the user then the founder does that's a bad side what about brad and we get these a lot in ycdemoday

because founder's pitching a lot of company i mean founder's pushing a lot of investors what about when the founder is hearing the exact same thing like it's the same why over and over again yeah we see that a lot we have founders that line up dozens and dozens of meetings and they go and you know rip through 25 of them and they come back and it turns out 23 of them all gave the exact same reason they might have said this market's too small or you're spending too much on advertising i don't see how your unit economics work

um when when everyone says the same thing the takeaway still isn't believe that it's think about it it's assess it like dig into it do you think that's a problem is this actually one of the things that you're wary of with your own startup um still don't take it at face value but you should listen to it you know we tell founders to take notes and jot down how the meeting went what they can do better next time and sure you should write the reason down don't forget it but our advice is not to internalize it

and kind of absorb it into your you know your mindset for the company should know about it but not soak it in i think this is the algorithm that i run when founders are fundraising it's like the first thing the first time they tell me there's a rejection into why i ignore it completely if they've gotten like 15 20 25 rejections i then ask are the y's consistent and only if then the y's are consistent do i even think this is a data point to

be considered at all like at all amongst all the other data points and the important thing to point out here is that the only way to get this kind of signal is to pitch a lot of investors right so you get this you get this rejection the first time the second time and you keep going right you keep pitching investors um one or two of these doesn't get it done so let's talk about the other side what are the real whys like i might argue that like the really brave and honest investors

might give you some of these wise these are wise that maybe you should pay attention to if you're getting them so what do you think what's in the first what are on your lists of of the the real wise i think a big one is you sit across from the person and in the course of the conversation you think i have a really hard time seeing this person building and running and leading a large organization and that's a huge question that's on the

table uh at every stage of investing and especially early on and if the person just doesn't seem organized or fired up um we've all met people that run big organizations and they are very impressive unique uh individuals and if that doesn't seem like you in the meeting uh you know that's a big reason or or let me say that slightly let me extend that if it doesn't seem like you're aspiring to become one of those people

right like you don't have to be that person today but if it doesn't even seem like that's on your agenda yeah and believe it or not folks we run into that a lot and investors do in general um a lot of people think that fundraising is about things other than raising money to build a really big company and it's not yeah i kind of think what's going on in the raw truth is investors are doing two things you're they're they're pattern matching to previous successes and answering the question idea do you pattern match to founders

i've had success within the past and then they're stack ranking like of all the founders i've worked with and are currently pitching me like where do you rank and the truth is you get a no because either you don't patent match or like you might have a match and you don't stack rank like you might be like okay yeah you remind me of the kind of founders i've done well with but like actually you're just not as good as the other ones i'm talking to right now um and that's kind of the blood thing that's going on but no one ever wants to say that no one ever wants to say that well and

it's interesting because oftentimes with the stack ranking thing it can be as simple as that like oh you have the credentials but you're not communicating clearly like i don't really understand what you're saying yeah which is like wow it's a oh it's a hard one right it's like like or i don't believe your numbers like you you gave me conflicting numbers and you and you you cast some doubt i feel like for those it's so tricky because it's like man i could like your

space i could think that you've got good credentials but like oh you undermined yourself those are tough also to give investors some credit maybe ourselves were rejecting companies from yc like the founders change as well like you might reject a company when the founders haven't actually gone out and spoke to any users or they're like two weeks into it and they might not impress you with anything but then a month of like real work they come back and the same founders can just seem different like

they've got real insights they see more their confidence has grown like and it's sort of like you're you're hearing a different pitch and so i think in those reasons it's actually fair for investors changing like we do we certainly like reject a company and then they come back and you're like oh wow okay like nap like i'm having a completely different conversation with a different person like totally want to invest in fact i think that separates yc i i would i'd be very interested in hear if there's any other fund that funds people

that it rejected six sixty percent of the companies that do yc were rejected at some point in the past like i would be shocked if there's any fun that does that or any school or any selective institution that looks back at a failed applicant and says like let's give them another try yeah because one of the pieces of advice i repeat after demo days over over and over again is keep a list of the investors that said no like who seemed reasonable about it and like just keep like keep sending them updates keep sending an update every month um

and shockingly if things start going well those same investors will reach out like change their mind like i've seen this happen over and over again for yc companies but it's not natural for a founder like they just assumed that once someone said no it's a no forever and yeah you can't convince them to change your mind with words but you can with actions well i think and that's probably the best takeaway here right in some fundamental way instead of you know losing your confidence stop fundraising like massively change your product based

on some reject email or whatever if you actually just change the facts of your business right like make progress more often than not the investor will look at that prognos as a much better signal than any modification you made to your deck or any modification you made to the words in your pitch like that progress is signal and that's probably the secret behind yc is that with multiple applications we can see progress

and wow it's like progress you is exciting to invest in progress and and what this looks like often is the founder says what do i say to this investor to get them to change their mind and we say tell them about the 10 new customers you just closed and it takes a second for that to land realizing that they need to go get 10 more customers and then tell them about it and not just write something different back to the investor but they have to change the facts so with that

to wrap up in fundraising season the most common thing we say over and over again is believe the no don't believe the why the founders throughout fundraising as long as you keep confident and realize there's more investors out there there's always more investors out there and you stay confident you're doing yourself a service don't fall into these traps don't fall into these traps all right brad harge great to see you see guys [Music]

you
