Successful investors say “no” to the vast majority of startups who approach their offices. It’s inevitable. A venture capitalist (VC) can only work with so many companies at any one time. With potentially hundreds of pitches being received every year, it takes something truly special to catch their eye.
The dream of any investor is to find a gem within the rough, which can be polished, and make both parties a hell of a lot of profit. No investor wants to lose money and so they’re particular about which startups they fund.
As a startup, you desperately need some monetary investment and expertise on your side, and so being turned down, again and again, can be catastrophic to your startup dreams. But how can you get past the big “no” you keep hearing, time after time?
It’s important to understand why investors turn down startup companies, regardless of which stage you are at in your development. With some adjustments to your approach and a few changes to your business plans, you might be able to quickly get a key investor onboard with your entrepreneurial dream.
Here are just 10 reasons why investors will say “No!” to your startup:
- You’ve approached the wrong investor
Many venture capitalists invest only in particular types of products and industries. If you approach an investor who has no interest nor experience in your sector or market, then it’s very unlikely they will reply.
For example, an investor who works with companies in the pharmaceutical industry is unlikely to invest in a gaming startup. It’s vital to do research into their background before you make a pitch.
- You have no coherent business plan
Without a solid business plan, the investor you approach will have no idea whether your startup is worthy of investment. You might believe it’s going to be the next big thing but your potential VC needs a lot more details.
A good business plan covers details such as: the structure of the startup; your target market; current consumer interest; sales plans; amount of funding you’ll need and why; financial projections; required documentation; your goals for the next few years; and a lot more.
- You can provide no evidence of market interest in your product
When there are no clear signs of consumer hunger for your products, then an investor will have a difficult time believing in your investment potential. Little interest in your company, such as via existing marketing campaigns, is a bad sign and usually means traction will be hard to come by.
Show proof of results. A VC will be able to read the numbers and judge the viability of your startup based on their vast experience and expertise.
- There’s a lack of trust
Even a great product won’t make up for a lack of trust. Beneath the surface, business is all about the human connection, and if a potential investor doesn’t trust you, you’ll be leaving empty handed.
Trust is everything when it comes to investing and includes investor judgements on your character, leadership, and decision making skills. It’s always wise to be genuine and also to develop your general business acumen.
- You’re not unique
If an investor has seen a number of similar ideas to yours, they are likely to be unimpressed. VCs love innovation and finding unique startups with the potential for greatness. They want their heads turned and to feel excitement about investing in your company.
In the early stages of creating your startup idea, it’s imperative to study your competition. The data will allow you see if you truly have something original and potentially groundbreaking that will excite an investor when the time comes to ask for funding.
- There’s a poor relationship between your co-founders
Two or more co-founders with major differences of opinion can spell trouble for a startup’s future. When co-founders are continually argumentative with one another, it shows, even when trying to put on a united front when meeting with potential investors.
A poor relationship between co-founders makes a VC very uneasy. While different ideas and dissimilar personalities can work very well together, there needs to be strong underlying respect, understanding, and unity at leadership level.
- You’re spending too much
Investors like startup founders with some financial intelligence. If you’re spending too much money on products and strategies that do little to grow your business, this will reflect poorly on you. This is especially the case if money is being spent inappropriately in areas in which you are asking for more funding.
How much you pay yourself as the founder is also a reflection on your professionalism and financial sense. It often pays to be lean until you meet with success.
- Your startup business is too expensive
Deciding how much your startup costs is a difficult figure to calculate. However, one thing a VC will know almost immediately is when a startup is pricing themselves too high. If your startup is too expensive, you’ll be hearing “no” on a consistent basis.
Price your startup according to things like past accomplishments, market demand, and what you deem to be your company’s potential. Be realistic and listen to expert feedback on this matter.
- You don’t have a sensible marketing strategy
Just like a business plan is essential when face-to-face with a potential investor, so is a coherent marketing and sales strategy. When all is said and done, you and your VC want to boost sales and make money. That’s it.
You need to have marketing plans already in place together with further goals, sales targets, promotion channels, expansion opportunities, and more.
- You are not open to being wrong
No one is perfect. No startup is without a whole catalog of imperfections. A potential investor is likely to point out a number of problems and flaws you and your company have, even if they are actually still interested in investing. It’s how you respond to these criticisms that says a lot.
Swallow your ego and respect the experience and knowledge a VC has, especially if they are in your industry. Take on board what they say and do everything you can to make the required corrections.
They might say “no” on the first approach but will be hugely impressed if you return another time having obviously listened to their advice and produced something outstanding.
Getting investors to say “yes”
“No” is the most common reply an investor will give to a startup. Yet when you take the time to understand the main reasons why they turn down startup founders, you begin to see ways to create more favorable responses.
As with anything when it comes to entrepreneurship, planning and research are key ingredients to success. From finding a viable startup idea and developing it to growing your business and creating a pitch an investor will love, every step requires careful organization and forethought.
Investors do say “yes” occasionally.
By doing the opposite of the ten points mentioned above, you’ll make it more likely they’ll say a big fat yes to you.
