What is the best response to “not making investment in that space at this time” from a VC firm?

My suggestion:

“Thx!! really appreciate all your time and digging in here.  ttyl”

or similar.

This is a minor power move when you have no power move to play:

• the Crazy Will Never Get Funded Founder writes a 20 paragraph missive back.  That never, ever works.  Not ever, in the history of Venture Capital.  Not once.   Ok, maybe once.  But the other 99 times you are branded Bad Kind of Crazy.
• the Not Quite Crazy Enough Founder who will do OK but never build a Unicorn writes a really nice thank you note back.  How great it’s been to get to know each other.  How let’s definitely keep in touch.  Don’t take this too far.  “A Good Guy” works.  But Too Nice is for Wimps.  [ So Patrick Mathieson‘s advice below is terrible IMHO 🙂 ]
• the Too Busy For You Founder doesn’t even respond.  That’s OK but it can leave a small bad taste.

but …

The Great Founder Doing Great Things who You Might Fund Next Time … sends a brief, nice acknowledgement.  It says thank you, but no sweat.  I’ll get the money.  It says I’m still gonna kill it, get funded, no matter what.

And it says, subtly … if you want to pay 5x in 10 months …

I’ll be there.

With 2 more term sheets next time.