What’s Next After You Lose Someone’s Money

This is Going to Big Big is written by Charlie O’Donnell, former VC and current coach to venture professionals and those trying to break in, and professional pitch deck skeptic.

I recently got hit up for a backchannel reference on a founder I had backed. His company didn’t return anything to investors when it got sold, and I hadn’t heard from him after the sale—so I didn’t know about the new company.

It’s perfectly reasonable to feel a bit awkward after you’ve lost someone’s money, regardless of whether they’re an individual angel or a venture capital investor. Just because it isn’t technically a VC’s own money wouldn’t make it any less of a black eye within their firm, right?

The follow-up after a loss might not be a conversation you’re excited to have—but it’s the best thing you can do for your reputation and your growth. Here’s how to have that conversation so these loose ends don’t come back to bite you.

What do I mean by that?

Well, it’s a bit awkward to have to respond to a reference check with, “I haven’t heard from them, so I don’t know anything about this new company.” That’s going to make the new potential investor wonder if maybe you left on bad terms or whether the founder has any reason to think I wouldn’t want to speak with them.

That’s the funny thing—most founders wouldn’t imagine I’d want to chat with them after they lost my fund’s money, but as long as they worked hard and did their best, why wouldn’t I? Every startup investor knows going in that the chances of success are going to be low. Do founders really think that VCs just have a broken relationship with the founders that don’t make a big return—which is most of them? That would be a lot of unnecessary bad blood out there, especially since the majority of people aren’t stealing from the company or moving to Fiji to kick it on the beach with the money.

When you were in the trenches with a founder, watching them fight tooth and nail to make something of your investment, you’ve gained a ton of respect—more than you could ever lose with a negative financial outcome. The idea that they’d rather back a complete stranger than work with you again doesn’t square with how they invest. They asked their own investors to give them 30 or 40 shots on goal because they know the first one, two, three, or twenty might not work out.

Could you imagine if their investors cut them off after one bad deal?

I’m not saying every VC will be thrilled to talk to you after a loss—but you can’t control what they think about your past performance. You can only impact the relationship going forward—and just leaving the loop unclosed isn’t the best way to handle it no matter what they think of you.

Let’s assume the worst—they think you’re a total loser. (I guess that’s the second worst. Let’s hope they don’t think you’re a crook because of actual theft. That’s probably unrecoverable.)

Maybe nothing will change the fact that they think you’re unbackable, but wouldn’t you rather follow up with them and tell them everything you learned about the experience and what you could have done better? I’m not saying grovel and self-flagellate. I’m talking about a fair critique and self-assessment.

You could come back with something like, “I just wanted to say I appreciated your support and that I’ve been thinking about my performance as a founder. I think I should have done more of A and B and less of C. C didn’t quite provide the returns given the amount of time I spent on that, and I think I could have realized that earlier if I paid more attention to it. Do you think that’s fair? I’m curious if there’s anything else you noticed that would serve me well the next time I do this.”

You could even weave a pitch for the new company into the request for feedback (as they say… “Ask for advice…”).

“This will be particularly important given what I’m working on now. We’ve seen an opportunity to take advantage of X disruption to a Y billion dollar market, and I’m going to need to be much better at A and B if we’re going to make this work.”

If the new company is in their wheelhouse and they’d ever consider backing you again, they’ll inquire now.

If they don’t want to back you again, at least if someone asks, they might not be so quick to say, “This guy was a total loser and I’d never back him again.”

Wouldn’t you rather they say something like, “Yeah, you know, I just spoke with him, and I think he learned a lot from the first time around—and yeah, the new company is interesting.”

Another reason why you should be reaching out to all of your prior investors postmortem is to weed out any unresolved issues. If anyone does have a problem with you—you’d rather know it than have rumors of your incompetence or malfeasance kneecapping your new raise.

Is it likely that anyone’s going to reach back out to your prior investors? 100%.

They’d be remiss not to.

Obviously, in the best of all cases, your prior investors can’t wait to see the next hard thing you attempt and want to give you money again. Even if only a handful of them do, that speaks volumes.

If they don’t, wouldn’t you want to know why?

Wouldn’t you rather hear it from them and get a chance to address the criticism?

Just ask directly: “If this was in your wheelhouse, is there any reason you’d hesitate to back me as a founder again? How would you advocate for me to your team? Would there be any fair criticism you’d have trouble addressing?”

Everyone knows the risks when you start a company or invest in one—and the best founders cultivate relationships that transcend financial outcomes through clear, honest communication and acceptance of fair feedback.