Dear VCs: Introducing the Two Strike Rule
“Fool me twice that’s my bad, I can’t even blame her for that” — Jay Z
Startup founders are incredibly resilient. They keep fighting when 99.9% of people would have already quit. That makes them a powerful force for innovation. But it also puts them at risk of continuously running into walls that will never budge.
Investors can take advantage of this unending passion and enthusiasm, using vaguely positive language to mislead founders into believing that an investment is close, then continuously moving the finish line to keep their optionality in place in case the startup really takes off.
Below is an attempt to standardize penalties for startup investors who use such tactics to undermine founders. I’m proposing a “two strikes and you’re out” policy—encouraging founders to give well-intentioned investors the benefit of the doubt while giving them the freedom to ignore investors who repeatedly turn them down.
This is a work in progress. If you have additions and/or revisions for this list, send them to @dearvcs.
Three Strike Offenses
These investors should go on your do-not-call list AND you should help your fellow founders out by telling them to steer clear of these people.
- Signs a term sheet, then never sends a wire.
- Makes handshake deal, then reneges.
- Accepts a meeting despite having a competitive portfolio company, then shares your slide deck with that startup.
Two Strike Offenses
These investors should go on your do-not-call list.
- Goes dark after a warm introduction.
- Goes dark after a pitch meeting.
- Accepts a meeting despite having a competitive portfolio company.
- Requires three-year monthly financial projections before writing a $25K check.
One Strike Offenses
These investors might deserve a second chance.
- Ignores a cold email that is clear, concise, and relevant.
- Declines a meeting due to having a competitive portfolio company, then shares your company name with that startup.
- Responds to a pitch meeting with a generic ‘no’.
- Says they’re ready to invest when you get a lead investor.
Zero Strike Offenses
These investors don’t owe you much, and might even be doing you a favor.
- Ignores a cold email that is NOT clear, concise, and relevant.
- Declines a meeting due to having a competitive portfolio company.
- Responds to a pitch meeting with a ‘no’ that is followed with honest feedback, preferably at the end of the meeting.
 Accelerators have done a lot to help break this stigma and help disseminate information about bad investors to their portfolio founders. This blog hopes to do the same for startups that might be outside of an existing startup community.
 Two strikes should be plenty for a founder to cross an investor off their personal list. Three strike offenses are reserved for investor actions that are so egregious that they must be shared with a larger audience. The startup ecosystem is a small, tight-knit community built on mutual trust. When that trust is broken, it risks undermining all future deals.
 You should largely ignore these investors unless they give you a reason to act otherwise (i.e. they make a handshake deal to invest). Best-case, these investors will still be around when you close your lead investor. Worst-case, these investors can give you a false sense of confidence about your funding prospects that will distract you from the real investors. Send them periodic updates, but don’t get your hopes up.
 It is the founder’s responsibility to ensure that the pitch is clear, concise, and relevant. Get to the point in the first sentence. Share a few KPIs. Drop a link to the product. That’s it. If the investor is interested, they will ask you for more information.
 Carefully study the portfolios of your potential investors. A history of investments in similar, but uncompetitive startups might actually be a positive for you. But beware the investor on a fishing expedition. Every VC ought to respect new founders enough to disclose a potential conflict of interest before accepting any information from you.