Not a Good Fit
Why respectfully saying "no" is an essential skill for angel network operators
Early-stage investors say “no” a lot.
VCs and angel investors all work with limited pools of investable capital, and by nature cannot say “yes” to every deal that comes their way. In fact, even the most prolific investors still find themselves saying “no” far more often than they say “yes.”
Angel network operators face the exact same challenge but in a different context. Instead of deciding whether or not to invest, the network operator is focused on deciding which deals would be of interest to their members. As I discussed in this post, the primary measure of an effective network operator is how often they close deals.
Today, I’ll introduce the second core step in the Angel Ops process: Evaluate.
Let’s break it down.
Pick Me Please
Angel networks that have done an excellent job with the Sourcing step face no shortage of interested founders. The network has effectively built and maintained key relationships, marketed itself, and made the requisite decisions about how to manage inbound interest. As a result, they receive more applications than they know what to do with.
This presents a new challenge: which ones should progress? In theory, the ones most likely to be a good fit for members of the group. But how many of those are there?
My experience has shown that most angel groups operate around a predictable cadence of pitch events. The three most common approaches appear to be “monthly” (typically 1-3 months are skipped, so it ends up working out to 9-11 events/year), quarterly, and ad-hoc.* These pitch events, which are generally structured in a “Shark Tank” format, are the space where the network membership is introduced to the “best applicants of the bunch” from the prior period. Every network has its own style for these events (virtual vs in-person vs hybrid, for example), but I typically see between 3-5 companies present at each one.
As a simple example, let’s assume Network A meets 10x/year and targets 3 presenters each month. Let’s also assume they’ve done a great job at the Source step, so they receive 100 applications per month.
This means that they have 30 slots to fill per year, but receive 1,200 applications.
They fill 6 of those slots with portfolio companies returning to provide an update and opportunity for follow-on investment.
That leaves 24 slots for new applicants and requires the network team to say “no” 98 times per month or 1,176 times per year. Yikes.
How on earth do they pick which ones to invite?
That question is the essence of step 2 in Angel Ops: Evaluate.
*Note: there are plenty of yearly pitch events, but they’re most often hosted by another larger entity like a university or economic development ecosystem. Most angel networks operate more frequently and will attend/support these larger events.
Step 2: Evaluate
As a quick refresher, Angel Ops, which I introduced in this post, seeks to map an answer to the following question: What does the process at a world-class angel network look like? Angel Ops is focused on the backend process of running deals and groups the workflow into 5 core steps. In last week’s article, I finished introducing the first step, Source. Over the next few weeks, we’ll dive into the second step: Evaluate. The objective of this phase is to identify which deals are a good fit for the network, which culminates in an invitation to present.
Evaluate
Job: Identify which deals are a good fit for the network.
Progressive Outcome (PO): Invite - The best applicants are invited to present.
Within each core step, there are 3 “supporting” jobs-to-be-done that contribute to the primary job. We’ll explore each of these supporting jobs for the Evaluate step in the weeks ahead, but first, we need to address one last thing: the need to respectfully decline.
Respectfully Decline
Once an application has been received, a response is mandatory. No founder should be left in the dark, especially after they’ve taken the time to complete a lengthy application process. More on this in last week’s post.
We just walked through an illustration highlighting how a mere 24 applicants at our hypothetical network are invited to pitch each year. For the other 1,176, a clear, concise, and respectful “not yet” is the kindest thing a network operator can give them. Including a bit of feedback as to why they weren’t a fit can be wildly helpful for a hard working founder. This “bonus job” is present in each of the three central steps, but is most pronounced at the Evaluate stage since the volume of companies turned away here is much higher than the other steps.
You may have noticed that “Respectfully Decline” points back to “build and maintain relationships” in the Angel Ops diagram. That’s because behind every application is a person. And the way people are treated gets around. If an operator wishes to build and maintain strong industry relationships, treating all founders (who, by the way, often launch multiple ventures and reapply for funding) with dignity and respect is non-negotiable.
Key takeaway: respectfully saying “no” is an essential skill for angel network operators.
What do you think?
How does your network pass on deals? What kind of acceptance rates do you typically see from application to invitation?
Weekly Observations: 3 Lessons Learned
Life is a gift.🏠🎁
On Sunday, our house’s AC system super died. I spent most of the day attempting to fix it before giving up and calling in the pros, who confirmed we had a critical failure. Thankfully some local friends have generously opened their home to us while we work out the fix (you know it’s a bad day when it feels better outside the house than inside. And it’s 100 degrees outside…). As I’ve processed the last few days and the impact of an unplanned 5 figure expense, I’ve been surprised to discover that my primary takeaway (besides exhaustion) has been this: life is a gift. Nothing is certain, I’m not in control, and all I can do is choose to be grateful for what I have. Take nothing for granted.
Events are a great investment. 📅
In this week’s quarterly review, we spent some time reflecting on what worked and what didn’t from 23Q2. One of the things we realized was particularly effective for us was attending events. Why? We think it’s because they create a natural platform for forming real relationships. Expect to see us around a bit more often this quarter…
Good character is good for business. 💼
This week I started reading Return On Character: The Real Reason Leaders and Their Companies Win by Fred Kiel (this was, admittedly, before the AC quit). It was a recommendation from Mike Elliot, who I had the pleasure of meeting a couple of months ago at Lions Den DFW (a faith-based & impact-driven pitch competition hosted by Dallas Baptist University). In the book, Kiel summarizes research findings from his company’s thorough character study of 121 CEOs in the US. If you don’t have time to pick up the whole book, here is an HBR summary of the research.
The two core takeaways he highlights in the introduction are:
#1: “There is an observable and consistent relationship between character-driven leaders and better business results.”
#2: “People demonstrate character through habitual behaviors. Therefore, they can develop the habits of strong character and ‘unlearn’ the habits of poor character.”
Excited to keep digging in - more to come.
About Me
I cultivate flourishing.
I'm also the CEO of PitchFact, where we help angel networks conduct efficient and collaborative diligence. I'm a proud husband, aspiring father, and grateful friend. My love languages include brisket, bourbon, and espresso.
About PitchFact
PitchFact helps angel networks conduct efficient and collaborative diligence.
Learn more at pitchfact.com.