When you get a “no” answer from investors, you should remember that being rejected is a common thing in a startup world. We have mentioned in previous articles, that only 1 startup out of 100 is lucky to receive funds. However, the absence of luck is not the only factor in a pitch deck’s failure.
In this article, we’re gonna focus on 6 main reasons why investors may reject your startup. You’ll find it useful if you have already failed to get fundraised and are not sure why or if you’re just in the process of approaching the ‘right’ people and want to be fully prepared.
So, here we go.
✔You’ve Approached Investors Improperly
This is the first thing you should think of when you get rejected. Are you sure that was the ‘right’ investor? Have you approached them in all relevant channels? Have you checked their LinkedIn profile, company website, and investment history before arranging a fundraising meeting? Have you asked for recommendations before approaching?
You need to know your investor before asking for capital raising. And we do hope you haven’t cold-called or email spammed them to arrange a meeting, have you? 😉
✔It’s All About Your Team
There is always a team behind any startup. Even if it may seem subjective to you, your investor has to like you and your team before they make up their mind to invest in your startup.
Here, the point is not about your being highly skilled and experienced in your industry or promising things you think investors would like to hear. A smart investor will always analyze the whole team for what they are truly looking for to see the big picture. And if you’re not a technical guru or don’t have dozens of successful startups to show – don’t worry. If there are people who can cover what you lack, that’s great.
When analyzing you as a founder, an experienced investor will seek strong personality traits. He will definitely check your communication and leadership skills, by the way, you present your project. Being confident is good, however, here, it’s important not to oversell yourself.
Besides that, investors will want to know how coachable you are. If you seem to have difficulties with accepting feedback/criticism and are not ready to change something if really needed, that might be a sign for an investor not to deal with you at all.
On top of that, what really matters to all investors is how honest and trustworthy you are to see if it will be comfortable and safe to build relationships with you. Thus, if there are any obstacles in implementing your startup or anything else investors need to know, make sure you make them informed before you become partners.
✔Your Pitch Deck Needs Improvement
There is no such thing as an ideal pitch deck. However, after every fundraising meeting, you have a chance to understand what needs improvement. At the end of the day, a badly prepared pitch deck is one of the most common reasons why startups get rejected.
Take a look at your pitch deck. The most crucial points that may make investors not consider your pitch are as follows:
- You haven’t clearly defined the problem your project is solving.
This is probably the main point in your pitch deck since it both makes investors interested in your undertaking and shows how deeply you understand your market. If you can’t explain the problem you aim to solve, this will also mean you don’t understand your customers’ needs. So, why considering a founder that doesn’t know the basic and most crucial thing – what and whom their business is meant for?
- You haven’t considered all (or at least some of) the risks. We are not tired repeating that being honest is crucial when it comes to a startup-investor collaboration. If you don’t mention in the very beginning the possible obstacles that might block your startup from implementation, and investors ask about them, that’s a sad-end story. Make sure you’ve analyzed and presented them well – this way, an investor will see that you are both trustworthy to work with and prepared for different scenarios to go by.
- Your business plan is unrealistic. Here, we talk about the inaccurate financial projections and incorrect calculations you may make in your business plan. This will present you as an unprofessional entrepreneur and your business as a not promising one.
If you have just started your business and want to get a 5 million revenue in a couple of years, investors will not believe you. The same goes for making too low financial projections – all investors want to invest in businesses that will bring many customers (and thus money) in the future. Be reasonable and accurate here (we hope, you’ve also taken care of all the calculations being done correctly;)).
And finally, make sure you are not asking too much. If you are, you definitely must have a set of success stories in place to present and base your request on.
- Your pitch deck form is not reader-friendly.
If your style and formatting are not clear, the text is too long and overly technical, and – what’s more – there are typos and grammatical mistakes, this will not only make it hard for investors to understand your business, but also make them not want to read it at all. Think of other, better prepared, pitch decks. Which ones will they choose to check first? And which startups have more chances to get an appointment after?
Find our tips on how to build a winning pitch deck in this article.
However, it’s not always about you who’s done something incorrectly. Very often, it’s some ‘outside’ factors that influence the investor’s decision not to invest in you. Let’s take a look at them:
✔You Have Better Competitors
Thinking that you have no competitors in your industry is wrong. And having not analyzed your competitors before even considering setting off a startup is even worse.
The reason why investors may reject your startup is that they have already seen your business idea and have probably invested in ‘your better’ competitor. That’s why make sure you have something unique to offer long before you make up your mind to knock at the investor’s door. 😉
✔It’s Not the Right Time
From what we have seen, a number of startups fail because they ask for funds too early or too late.
Very often, founders with a functional prototype come to VCs that usually don’t invest until that’s a Series A investment round (if this is your case, use this meeting to understand what milestones you need to hit before asking for an investment).
Sometimes, founders are too late with their ideas because they are no longer innovative and thus no longer unique or interesting to investors.
This way or another, if you mix up the time you need to approach an investor, it may take you even more time to get your next opportunity.
✔And sometimes, It’s All About Them
It may seem strange but sometimes, a VC may reject simply because it has committed all capital to the existing investments. That’s right.
As a rule of thumb, VCs commit to their funds during the so-called necessary investment period – the first three or five years. Sometimes, they don’t invest, because they have completed investing in their first capital call and are waiting for the next one.
However, this info is always kept as a secret. Instead, the VC will arrange a meeting with you to listen to the latest updates, see the possible/future deals, and just show they are still in the game. 😉
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