As a venture capitalist, I receive a steady stream of e-mail from entrepreneurs looking for funding for their businesses. I'm happy to receive these e-mails and try to respond to all of them. When they ask for advice, I try to quickly point them to something I've written or give a focused answer. When it's about a potential new investment, I determine quickly whether I'm interested. If I am, I ask for more info and engage more deeply. If I'm not, I politely respond that it's not my thing.
In some cases, I never hear from the person again. In others, I receive a short e-mail that says something akin to "thanks for your consideration." Occasionally, someone reacts negatively and goes off on a rampage about how venture capitalists are the scourge of the universe, how they stifle innovation by not supporting entrepreneurs and how I probably even kick my dog on a regular basis. This approach rarely elicits a response from me and is not particularly effective.
However, I've noticed one thing that happens about 25 percent of the time: The person I have politely declined asks me for a referral. This takes a number of forms, including the direct question "Can you refer me to another investor who would be interested in funding me?" as well as the less direct "Do you have any suggestions for people I should be talking to about my project?"
Having experienced this many times during the past decade, I have come to realize this is a bad implementation of Networking 101. In networking seminars, classes and sales conferences around the world, people are told some version of "if you get rejected by someone, ask them for a referral." This has never worked for me when dating. (After being rejected, I don't recall saying, "I know you aren't interested in me, but do you have any friends that are?") I've never really understood why people think this works in a business context.
It's even more dramatic when you are approaching a potential investor. Many investors, especially venture capitalists, don't respond to random e-mails soliciting investment. When investors do respond, it's not an indication they are interested; rather, it's a polite response. If they express interest or offer to help in some way, that's good. But if they don't, they are clearly saying they aren't interested.
By asking for a referral from investors who aren't interested, you are doing two things. First, you are asking people you don't know who have just been polite and taken you seriously to do something else for you. Second, and more importantly, you are asking them to implicitly endorse you.
Venture capitalists take referrals seriously. If someone I trust e-mails me a referral, the first thing I do is ask the VC for more information about the person being referred and whether the VC is interested in investing in the person. If the VC doesn't know the person, I immediately question the validity of the introduction. If this happens regularly, I heavily discount the value of any introduction from the VC. This is a self-correcting phenomenon. Good VCs are careful with introductions because they want to make sure both parties view the introduction as valuable. Hopefully entrepreneurs understand this dynamic.
Brad Feld has been an early-stage investor and entrepreneur for more than 20 years. He is a co-founder of Foundry Group, an early-stage VC firm. Brad blogs at feld.com and askthevc.com, run marathons and lives with his wife and two golden retrievers in Boulder, Colo., and Homer, Alaska.