One Thing Is Harder To Get From Investors Than Money: Candid Feedback

Candid feedback is a wonderful thing.

It is essential for anyone who wants to get better at what they do and get ahead in life. It is oxygen for any professional with a learning mindset. It is also one of the sincerest ways to show someone you care about them.

Conversely, lack of candor in any of its forms (keeping your opinions to yourself, withholding criticism, avoiding the elephant in the room, avoiding conflict, sugarcoating) is a killer if it is allowed to infuse the culture of a company.

You simply cannot have a well-functioning team without a culture of candor.

And yet, many of the interactions between entrepreneurs and investors end in a polite, boilerplate, don’t-want-to-hurt-your-feelings, substance-free “pass” e-mail. Worse, some investors just end communication by “ghosting.”

The entrepreneur learns nothing from the interaction. The investor misses the chance to earn the trust of the entrepreneur for future encounters. A tremendous amount of time is wasted. We’re all dumber as an industry for it.

For an industry that prides itself in truth-seeking, this is ironic. We all know this is a problem but somehow allow these behaviors to perpetuate.

It doesn’t have to be this way.

The rare instances when you get candid feedback from an investor can be precious learning moments

In my first year as CEO, I remember meeting with three investors who left a mark.

One was a renowned investor in the Greater Boston community. As we were nearing the last five minutes of the meeting, he told me, “I like the science and I think this will work in people. But I don’t like your valuation, $X is more where I think you should be, and I have a couple of interesting opportunities at a price I like better that I’m working on now, so I’m a pass.”

It was clear, direct, and truthful. Was he being too candid? I don’t think so: he showed respect for my time (and his) by passing on the spot – he had reached his decision, so why procrastinate in sharing it? And price discovery in a private financing is notoriously hard! Every financing since, I’ve gone back to this investor early in the process. He has never invested, but it doesn’t matter. If you give candid feedback, you are automatically in the 90^th percentile of investors in my book and I will come back when we have new data, if you are still the right investor at that stage.

A second one was inclined to invest. In one of our meetings, I brought up a new idea for a program that was a bit too green. He proceeded to pick apart the commercial model and laid bare how little thinking I had put on that end. Then, politely, he found a way to tell me “I don’t think you are well prepared”.

This was very hard to hear. I was embarrassed. But it was true. I have never again showed up to an investor meeting unprepared to discuss a topic I had chosen to cover. For reasons only known to the almighty, despite his well-founded concern, he participated in the financing, and has since become one of the go-to insiders who I reach out to whenever we’re fundraising, and I need someone to pressure-test our investment thesis.

In the third case, while working on my first financing, a deep diligence process that went on for weeks with a group ended in a crushing pass. The investor told me, “You are a virtual company still. Exciting discoveries, nice papers, great founders, but this is a new field, and you have no physical labs, no CMC capabilities. I don’t know if you will be able to do what you say you will do.”

This was hard to hear, because it laid bare the fact that there was significant work ahead before we would be investable by a whole subset of investors we were courting. But it was truthful. By the next time we were fundraising, we had built these capabilities and had put them to good use. This investor was my first call. His group ended up leading our round and has continued to support the company since.

Investors who are good at sharing honest actionable feedback with management teams are rare. They leave an impression. What these three cases I shared have in common is that, in each instance, the type of feedback described is not easy to give (“I don’t like the price” / “you are not prepared”), and that each of them led me to make changes that made me better at my job.

A recruiting analogy

I spend a good portion of my time recruiting talent to our team at Vedanta Biosciences. There are always more candidates than openings and we say “No” more often than “Yes.” If a candidate has spent several hours of time interviewing with us, my view is that we absolutely owe it to them to give feedback if they ask for it.

To be clear, I don’t feel this same obligation if a candidate does not ask for it or if I pass after reading a resume and before investing time from both sides in an interview. But if I took one hour of your time (and invested one hour of mine) for an interview, I surely have five minutes to get on the phone and give you feedback.

When I am asked for it, I will invariably feel that knot in my stomach “I am dreading the conversation” – no one really enjoys giving feedback after a pass. But then I will remember that in almost two decades of doing this and hundreds of feedback calls, I have yet to encounter a candidate who asked for feedback and then was not appreciative of it. I find the thought of giving feedback is far more uncomfortable than the act of giving it, which can be liberating.

Most candidates who ask for feedback do it because they genuinely want to learn and continually improve themselves. If I can give the candidates more clarity on how we reached our decision in an actionable way that helps them, why not do it? I put in the work, I might as well give the feedback.

It’s not only the decent thing to do, there is also an element of self-preservation. I know our paths will cross again: another position will open up down the line, and I hope they consider us again; others will go on to do great things and they may be on the other side of the table sometime soon. We simply cannot afford hundreds of rejected candidates feeling like they weren’t treated right. Our brand as an employer depends on it.  

Why not? The Lies Investors Tell Themselves to Rationalize Not Giving Candid Feedback

“I don’t have time for this. I’m very busy. They will understand”: actually, no, we don’t understand; we are very busy, too. Unsolicited outreach or immediate passes that come without a meeting need not come with the expectation of feedback. But sharing feedback with a team after spending hour(s) meeting them is the right thing to do. Entrepreneurs understand investors manage large portfolios, sit in many pitches, and that time is precious. But it takes five minutes. It’s not about the time.

“It feels risky to share that feedback, I may alienate the entrepreneur”: I should sympathize with this rationalization. In my first year in industry, working as an analyst on the investor side, I passed on an opportunity because the entrepreneur was unwilling to share any info on his drug’s target; absent that information, I could not diligence the company. He reacted to this feedback with a nastygram CC:ing all the partners at my employer and calling mine the “worst diligence process and fastest, least reasoned pass” he’d ever seen. It did not feel good to be accused of incompetence in front of my boss and colleagues.

Risk aversion in the context of giving feedback is a real issue, because the type of instance I just described, while rare, can leave a lifelong impression. After experiencing this, an investor may be hesitant to give specific feedback for fear of alienating the entrepreneur and inviting future vindictive behaviors. There is some risk in offering candid feedback. Ultimately, it is up to the investor to decide if they are willing to take it. But I would argue this risk is very small if the entrepreneur has already asked for the feedback, because the mere act of asking for it self-selects the recipient into a group more likely to handle it well. The irony here, of course, is that if you have asked for feedback, the ultimate form of alienation is not getting any.

“You can’t handle the truth”: an investor may feel that saying nothing is better than saying something that may be demoralizing to the entrepreneur. There are types of feedback that can be demoralizing, indeed (for example, a well-reasoned argument for why you should start thinking about terminating a program).

Crucially, some of the hardest feedback you’ll ever hear is “elephant-in-the-room” type of feedback, as in that one thorny issue that you have been actively avoiding but you really need to address. It may take days or months for entrepreneurs to digest the bitter pill of hearing this type of feedback, but ultimately time and perspective makes you most appreciative of the ultra-rare investors that go there, because it takes courage and clarity of thought.  

I would also argue that giving this type of feedback will give the investor a valuable window into the entrepreneur’s character. Did she handle it well and did it result in something being learned? Was it dismissed? Did it trigger defensiveness? Either way, you just learned something very important about the entrepreneur!  Entrepreneurs have to develop thick skin to survive. We spend our lives dealing with rejection.

“I would rather wait and see if the round gets hot”:  Some investors may delay sharing feedback or communicating a decision hoping that if the round gets hot, the entrepreneur will accommodate them with an allocation. But most entrepreneurs understand that no decision means “No”.

No optionality is actually being preserved here. I’d argue that a good way for an investor to keep optionality is, in fact, to give candid feedback. Other things being equal, if the entrepreneur has options of which investors to go back to, it makes sense to prioritize those from whom you have learned something.  

Personally, I am more likely to come back to investors when they passed and told me exactly why than when I don’t know where they stand. As we make progress with our programs or in forming a syndicate, I will know if their previous concerns have been addressed.

“It’s not my job”: While, as a manager, it absolutely is my job to give and take constructive feedback and help mentor teammates, some investors may view their role as purely making decisions on investments. Some see giving feedback as being outside the scope of their responsibilities. While not entirely unreasonable, this seems narrow-minded. The value of the relationships that candid feedback helps foster with entrepreneurs over a career is most certainly not zero. Ask any entrepreneur.  

“It’s not you, it’s me”: I put in this category a whole set of boilerplate responses where there is only the illusion feedback. “This opportunity is not a fit” does not mean anything to anyone absent an explanation of why. Or “this is not at the right stage for our fund” or “is not the right therapeutic area for our fund” falls in the category of things that are knowable at the outset, just like you can know by reading a resume if a candidate meets a job description. They are perfectly valid reasons to turn down a meeting request, but are they credible as the reason why an investor would pass after having spent time in a diligence process? They certainly provide no insights on the real Why.

In my view, the real reasons investors rarely share candid feedback with entrepreneurs are none of the above.

The real reasons? First and foremost, it’s the easy thing. Giving candid feedback is hard. It takes courage. Humans tend to avoid hard things.

Second, entrepreneurs often don’t insist on asking for candid feedback. If you don’t ask, you don’t get.

Third, investors don’t have the incentives to give it. You can’t change human nature but there are things you can do about the last two points.  

How to increase the odds of getting candid and useful feedback: ask for it and reward the investor behavior you want to see

You don’t ask, you don’t get: it may seem obvious, but you need to be proactive in asking for feedback if you want to get it. When my first email gets no response, I try a second time, and I explain in more detail why I’m seeking the feedback. A third or fourth time may not be warranted (in this case the investor probably intends to ghost). You may have a slightly higher probability of success asking an associate or principal for feedback: some may value building a career-long relationship with you differently than a veteran investor would.

Be specific in what feedback you seek and be respectful of the investor’s time: I want feedback on the reasons for passing, and five minutes is plenty of time. Sometimes it may be more comfortable for the investor if you ask for a few things they liked about the company and a few things that gave them pause.

Listen, don’t argue: If you are lucky to get candid feedback, then listen actively and don’t argue. The time to get the investor to invest is past, now is the time to learn. It’s important to decode the feedback with clarification questions, so that you fully understand it and can act on it. But it’s equally important to not cross the line from clarifying into arguing. Coming across as defensive, interrupting, trying to “win an argument”, or being dismissive will only result in the investor being less generous with the amount of feedback.

Sometimes the investor’s reasoning will be clear and sometimes it will not be well formed. That’s fine: you can triage the feedback after you’ve had time to digest it and certainly you have no obligation to act on it if you don’t agree. But even the feedback from an investor that “didn’t get the story” will be valuable. It may reveal weaknesses in how you delivered your pitch.

Reward it: “to get candor, you reward it, praise it, and talk about it. You make public heroes out of people who demonstrate it.” That’s advice from the late Jack Welch, former CEO of General Electric, and the most lucid thinker on the subject of candid feedback.

I had the good fortune of taking a class taught by him at MIT and he tattooed these words in my brain. Say “Thank You.” Tell the investor that you appreciate the time taken to give you feedback. If you agree with the feedback, you may want to share how you plan to address it. Tell your fellow entrepreneurs about this investor. And consider going further: make this investor your first call when new data emerges or when a term sheet comes in.

Create a real incentive for the investor behavior you seek.

Is there any correlation between giving candid feedback and being a successful investor?

Given everything I have said, this statement is something that I badly want to believe. And wouldn’t it be nice to end with an upbeat note. But here is something that’s been bothering me: I’m in my second decade of interacting with investors, and after hundreds of exchanges, I am not confident there is a correlation between giving candid feedback and investor performance in the top ranks.  

If you disagree, there is nothing I would love more than to be proven dead wrong on this. I have interacted with folks in the Midas List that were physically incapable of giving feedback and a few top investors that were phenomenal at it. And the frequency distribution of these phenotypes didn’t seem substantially different among different tiers of investor. Is the hopeless conclusion of it all that, in the game of outliers that is becoming a top investor, only certain other skills really matter? (For example, having a keen eye for promising opportunities or a good intuition for spotting and assessing key risks?).

Or can we, entrepreneurs, collectively shape a future where the rewards for giving candid feedback are tangible enough to influence the investor behavior we seek?

Bernat Olle is the CEO of Cambridge, Mass.-based Vedanta Biosciences.