C2V September Notes From The Trenches
Welcome friends! As our longtime readers know, nothing puts a hop in the step of all of us here at C2V HQ quite like Fall in the Northeast. Between the weather, the leaves changing, and the start of football season, it doesn’t get much better than this.
We’ve been told that excessive sports content doesn’t play well here, so we’ll skip it other than to say that the biggest surprise through three weeks of NFL action is that passing seems to be dead (with multiyear lows in yardage and scoring), so we’ll pick up the mantle here and talk about passing… on deals. Wait, that was terrible, let’s try that again… Unlike the 2024 NFL, our passing game remains a well-oiled machine (okay, it’s clearly not our month; let’s just move on with a promise to do better next time)...
The VC/Startup Passing Game
While, of course, if you asked anyone (including any VC) what a VC does, they’d say they invest in tech startups. But if you actually looked at how our hours are allocated, the more accurate answer might be that we pass on startup deals, with the occasional pause to diligence and invest in one of them. It’s not that we enjoy the rejections more than the investments (quite the opposite, in fact); it’s just the nature of the business (for more on that, check out our August 2022 newsletter, where we covered all things deal flow).
Similarly, if you asked a founder in raise mode how they were spending their time, they’d tell you it was raising money, when in fact they’re really spending their time dealing with rejections from potential investors, with the occasional break to collect a signature from someone who actually said yes.
So, to make a long story short (too late, we know), how we pass on deals and how founders handle being passed on really matters.
VC Best Practices & Practicality
We firmly believe that we and other VCs should be as honest as possible with founders when passing on a deal, both about why we’re passing and whether we may reconsider in the future.
We will speak more to the latter below, but as far as being open and honest with founders about why we’re passing, we see this as an invaluable service to both those founders who put themselves out there for us to critique and the community as a whole… something that, we have to confess, we (and we suspect most other VCs) don’t do nearly often enough.
This is not because we lack the desire to do right by you, noble and brave founders, nor do we lack the willingness to make the required effort. We want to give every one of you feedback when we pass; we really do. So why don't we? Because 30-40% of you respond to that feedback by arguing with our reasons for passing or explaining to us why we're wrong.
We realize this isn't remotely fair to the 60-70% of you who politely thank us for the feedback and move on, but we barely have time to write out our “pass” rationale for every deal to begin with; we definitely don't have time to engage in a debate about it, and 30-40% of our passes represents a huge number of companies, so it’s a material risk that we’re often reticent to take.
Grace in Defeat
There is most definitely a right and wrong way to handle rejection, in startup land and otherwise, but understanding this (and acting accordingly) is arguably more important in the startup world than anywhere else (save possibly dating). Why? Because you’re going to get rejected an enormous number of times. Whether it’s fundraising or sales or just about anything else, you’re going to hear “no” many (many) times more than you’ll hear “yes,” especially early on. If you’re not someone who can handle that (which isn’t remotely a criticism — few can), the entrepreneur life probably isn’t for you.
For those of you who do choose to brave these fraught waters, how you handle rejection is critical to your success. Like with so many founder decisions, a simple risk-reward calculation is all you need to see this, and in this case, it’s pretty straightforward. There is quite literally no upside to either arguing with pass feedback from a VC (even if you’re right) or, even worse, accusing a VC of misleading you or contradicting themselves or any other form of nastygram (we don’t see this often, but it does happen), and potentially quite a bit of downside, up to and including blowing a chance at getting funded by that VC in a later round.
There’s also real upside to handling passes gracefully, the biggest of which is the potential that we may invest in that subsequent round.
Never, Ever Needlessly Close a Door (Especially If That Door Has Money Behind It)
There seems to be a lot of skepticism in the founder community that VCs are being truthful when we pass with some variety of “Not now, but maybe later.” While we certainly can’t speak for the entire market here, we can tell you that this is not something we say unless we actually mean it (and we know this to be true of many of our peers as well). At least a half dozen companies across our portfolios (including a couple of our best ones) are companies we invested in a round after we initially passed. We even have a dedicated bucket in our deal flow CRM called “Keep Tracking,” specifically for this subset of companies.
To be fair, the number of outright passes is far (far, far) larger than the “keep tracking” set, and we don’t end up investing in the majority of these names either. But again, an exceptionally low hit rate is the nature of the game, and that’s really the point. Given the odds you’re facing, any little improvement to your probability of landing meaningful funding (now or down the road) can make or break your future success. We guarantee those founders we invested in one round later are thrilled that they accepted the initial rejection gracefully and kept us copied on their updated mailing lists (even if it meant taking a hit in the short run and continued uncertainty beyond that).
Maintaining Perspective
It’s also worth remembering that how a founder responds to adversity has a very meaningful impact on their eventual success (or lack thereof). We hate to say it, but getting kicked in the teeth is a pretty regular occurrence for founders (especially early), and your resilience is a key data point we VCs look for.
So, before replying to any “pass” email, we’d recommend that you please (please) stop and ask yourself:
What's the upside to arguing here? Do you really think you're going to change our minds this way? And if there’s a chance of changing one VC’s mind (which is maybe 1 in 100 at best), does that make up for the damage you may do with the other 99?
What's the downside? Does this kind of behavior show you in the best possible light or suggest to us that you have a high EQ? Do you think we'll be inspired by how not-especially-well you took just one of the thousands of punches you'll have to take to get from here to a meaningful exit?
Is there a chance that we might change our minds one day and that you might potentially be shooting yourself in the foot by fighting with us now?
It’s also worth remembering that you’re not the only one frustrated by rejection. We can promise you, we VCs get rejected just as much as you do (if not more) and we can assure you that arguing with prospective LPs when they give us what we consider to be misguided reasons for passing on our funds is just as bad of an idea.
Again, most of you are nailing this, so we’re just hoping the rest will consider it. If you won’t do this for yourself, at least do it for your fellow founders, who deserve the feedback we’re too often afraid to give them.
Last note on this: don’t forget that living well is the best revenge (as the saying goes). Do you really want to rub it in our faces after we say no? Take our pass with grace, move on, grow the business, get yourself acquired for half a billion dollars, and then respond to our original pass email with just the link to your exit press release (and nothing else). It’s still a little petty, but we’d actually kind of respect it.
New Investment
We’re pleased to announce our newest investment, from our pre-seed, Tributary Fund, AI-OPs. Based in Mobile, Alabama, AI-Ops uses deep reinforcement learning to optimize autonomous control models for various heavy industries (e.g., petroleum refineries, water treatment facilities, pharmaceutical manufacturing, etc.).
The company’s AI models seamlessly integrate into existing control systems, adding various capabilities, including anomaly detection, time series forecasting, soft transmitters, and deep reinforcement learning for autonomous control actions. Users are empowered to develop and integrate their own AI models or opt for more customized models tailored to their process data. These models can then either directly control processes or offer actionable suggestions to operators and provide substantial ROI via (among other things) reduced process disruptions/increased uptime, as well as labor, energy, and other cost reductions.
AI-Ops’ technology is truly impressive in its ability to quickly and comprehensively evaluate highly complex control systems (across a wide variety of industries and vendors), identify process bottlenecks and other areas of inefficiency at a granular level, and generate the detailed process adjustments needed to address them. We believe this will not only be a material driver of sales efficiency (even with very large enterprise customers) but also a significant barrier to entry for potential competitors down the road.
While it’s still relatively early days for AI-Ops, we’re encouraged by the rate of customer adoption and the caliber of those customers (multiple Fortune 1,000 companies are already using the product).
Portfolio Spotlight
Exciting highlights from our portfolio! Meet Max Echeverría, founder of Eskuad—a no-code platform transforming productivity and compliance for maritime, forestry, and mining field operations.
Max, an Industrial Engineer and self-taught developer, was inspired to create Eskuad after observing his dad run field operations.
He recognized the challenges faced by workers in remote areas with limited connectivity and set out to simplify data collection and reporting.
Eskuad reduces administrative burdens and enhances efficiency, improving the quality of life for field workers.
Under Max’s leadership, Eskuad has secured funding from top investors and support from organizations like Google for Startups and Techstars.
Proud to support this innovative journey!
C2V WaterCooler
Chris had a busy September speaking and judging at several events.
Portfolio News
Phalanx Launches SendTurtle
Phalanx has launched SendTurtle, a secure file transfer solution designed specifically for small and medium-sized businesses (SMBs). This innovative tool allows users to send and receive files securely without requiring clients to sign up or install software. Key features include:
No signups are needed for clients, ensuring hassle-free transfers.
Granular access control to restrict or revoke access at any time.
Detailed activity logs to track who viewed or downloaded files.
Seamless integration with AWS S3 for secure and automatic file receiving.
SendTurtle is ideal for transferring client documents, exchanging sensitive data, and collaborating with vendors, all while ensuring security and ease of use.
Taras Kravtchouk: America, Art, Motorcycles & Sustainability
CleanTalk, Director/Producer Luke Harmer visits Taras Kravtchouk, founder and head of design at Tarform, a luxury electric motorcycle company in Brooklyn. Taras, an artist, engineer, and entrepreneur, draws on his European background to contribute to the sustainability conversation in the U.S. The episode explores topics like product design psychology and the U.S. energy and environmental narrative, offering valuable insights into sustainable product development in New York.
Are Summer Investments Happening?
Exciting summer investments are underway! At the recent Brex Supper Club, we highlighted innovative founders like Jeremy Crane of Retrievables. Their platform connects businesses with specialized collections attorneys, making debt recovery easier for SMBs and lenders. With $1M in funding and over $20M in debt service this year, Retrievables is proving invaluable in today’s market.
GoodRoads Awarded a Cooperative Purchasing Bid
GoodRoads was awarded a Cooperative Purchasing Bid with the North Central Texas Council of Governments. This means that any public agency of any size in the United States can contract with GoodRoads to inspect its roads without needing to make the arduous Request for Proposals (RFP) process that is normally legally required. It also makes it a lot easier for GoodRoads to win big contracts.
Scaling a DSO and Selling to Heartland
Scott and Jinesh chat with Dr. Ray Scott about his journey scaling American Dental Partners and eventually selling to Heartland Dental. They touch on a few of the many lessons learned along the way, including implementing systems and processes, building culture, and aligning incentives. They also discuss considerations around selling to DSOs of different sizes, the change management involved with a sale, and the importance of being patient- and doctor-centric.
Paladin Partners with Power The Polls
HELP STAFF YOUR LOCAL POLLING PLACE
Our democracy depends on ordinary people who ensure every election runs smoothly and everyone's vote counts. Paladin is partnering with Work Elections to help get more poll worker sign-ups.
Somatic Robot Cleaning
Relax for one hour while the robot cleans ASMR.