VCs have hard time saying no. I don't blame them. Burnham's Beat has a good post about the topic: "The Art of Saying No".
In advertising there is a golden rule that one should never use negative terms - they could stick. If there is a chance of getting a negative association the risk is not worth taking. The same applies for the VC world. Businesses are personal for the founders. One is not saying no to the business model but directly to the persons as well. Or at least that's how often it is taken.
There are plenty of ways not to say no but still deliver the same message. Often VCs are suggesting some improvements or more milestones to catch up before moving on. They want to see your demo / prototype, first customer reference, some revenue, complete team, another committed investor etc.
The art of raising funds is to read between the lines and understand when they are really interested but want more evidence and when is the case that they are not going to invest. Only by experience one can tell the difference.
Finally some words of comfort. A VC (don't mean Fred!) saying no (or meaning it) is not actually a big thing. There are plenty of reasons for the answer and often it does not even indicate anything about the case. Some of these reasons could be that:
- their fund is already invested (2/3 or so, the rest goes for follow-up rounds)
- they are not familiar with the business area / industry
- the management company is not able to get approval from their investment committee (change of focus, someone is pulling out etc.)
- your business does not fit to their current portfolio (breaks the balance, similar investments already in, current investment would look bad etc.)
- they are just too busy to evaluate the case!
No wonder why VCs are like politicians - it is not that simple.
It took me a long time to appreciate this but it is so true: it is better to say no to the next google, amazon or ebay than say yes to a turkey.