Dear SaaStr: How Do I Reject a VC Without Spoiling the Relationship?

Be (1) clear (2) and respectful.

Let me use myself as a case-study. I have one spoiled VC relationship — all the rest I consider pretty strong.

Here’s what happened to me:

• I told this Top Tier VC what the valuation was, my Ask. I was 100% clear on this in every way, shape and form.
• The First VC nevertheless wrote me a term sheet at a lower valuation.
• The First VC also wrote in this term sheet granting his firm 3/5 of the Board seats at Series A.
• I didn’t respond in any way, at all. The First VC then left to go vacation on Some Expensive Island.
• The Second VC then gave me the term sheet I asked for, the asked-for valuation, and 1 Board seat.
• Before accepting from the Second VC, I called the First VC, who was still vacationing on Some Expensive Island. I told him.
• The First VC became outraged, and said at his Top Tier VC Firm, no one had ever not closed a signed term sheet. Ever.
• I told him I’d never signed it (I hadn’t), we’d never even discussed it — and that it wasn’t what I’d asked for, and that we’d never agreed.
• The First VC got so mad, he went to the Second VC, and insisted they not fund me.
• Which created huge drama.

Ok so what happened? Did I do anything wrong? Was I less than transparent, ever?

No. Of course not. Not only did I sign absolutely nothing, but my ask wasn’t met. And I was completely, 100% transparent in the process. To my detriment, in fact, such that the First VC went and tried to force the Second VC not to do the deal.

But what did happen is the First VC was convinced in his mind he had a done deal. Even though we clearly did not.

The learning: just make sure VCs know exactly where they stand. Be 100% crystal clear, in writing, in email.

>> Don’t let VCs think they have a deal if they don’t. Even completely inadvertently.

That spoils the relationship.