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7 Reasons Venture Capitalists Say No to Startups

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Entrepreneur

“No.”

This one little word can be the most excruciating thing to hear for entrepreneurs desperately seeking funding for their dream venture. Unfortunately, most entrepreneurs will hear “no” often. According to a study published in Harvard Business Review, only 1% of meetings with potential investors turn into a partnership.

While it was challenging to hear investors decline my pitches as an entrepreneur, I find it just as difficult to turn down budding startups now that I’m on the other end of the spectrum. Luckily, my years of experience in both capacities have helped me better understand the minds of investors. That’s why I want to share seven reasons investors might reject your business pitch.

Related: Venture Capital 101: A Comprehensive Guide for Startups Seeking Investment

1. Your numbers don’t line up

Part of meeting with potential investors is sharing the raw numbers of your business. For some, this isn’t a problem, while others feel some trepidation and may even consider making things sound better than they are. It may have been an honest mistake. Either way, venture capitalists are savvy and will always spot incongruencies, especially when they do their due diligence — which they will.

If they find the numbers you presented aren’t accurate, they’ll call you on it. Integrity and competency are vital for solid business partnerships, and a failure in either area could put your reputation at stake.

2. Poor consumer perception

This may seem obvious, but if your target audience isn’t buying what you’re selling, neither will investors. Even if your sales numbers are considerable, if your customers aren’t happy with your product or service or there’s a consistent theme of discontent, that’s a clear signal to step away from the table.

Venture capitalists need to know that you’re doing everything possible to ensure customers are satisfied and cared for. Not only are happy consumers more likely to remain loyal to your company if they’re happy, there’s a higher likelihood they’ll share your product or service with others.

3. Your company lacks diversity

Culture matters. It’s what drives good organizations to become better ones. A crucial part of developing a solid culture is embracing and hiring people from different backgrounds with various perspectives. This is how innovation thrives.

A lack of diversity in your company now may tell investors that building a diverse culture will become a problem as the organization grows later. One caveat: Don’t make it about meeting some “quota.” It should come from a genuine desire to expand your horizons and create positive change for your company and industry.

Related: Serial Entrepreneur Turned VC Reveals 4 Numbers You Need to Know to Scale Your Company

4. You seem difficult to work with

Even if they believe in your business, most venture capitalists won’t just hand you a check and pat you on the back. No, it’s more about forming a lasting partnership to ensure the company’s long-term success.

That means that while it’s the company you built, you’re still open to new ideas or suggestions for improving it. Investors know what works and what doesn’t and want to pass that on — but only to someone willing to listen. If you come off as an entrepreneur who must have everything done your way, you’ll be hard-pressed to find willing suitors.

5. Your business won’t stand out

You can have a solid business model with a quality product or service, but your company will blend in with the rest if nothing differentiates you from what’s out there already. In a market likely saturated with similar ideas, investors want to see something that will make your idea stand out. How is what you offer innovative from what currently exists? If it’s not, they won’t be interested.

Successful entrepreneurs know their market and customer base inside and out. They have done extensive research on what others are doing so that they can deliver something special.

6. You’re underprepared

Simply getting a meeting with venture capitalists is a feat in itself. With hundreds of proposals and pitches coming at them, their time is a finite resource. There are no second chances.

If a question from an investor catches you off guard or you don’t have a satisfactory answer at the ready, you’re not likely to gain their confidence and support. I know you’re likely putting in 20-hour days just to keep your dream alive, but you can’t afford to be off when you have a shot like this.

It’s a lot of pressure to be under, but it’s also an excellent chance to show investors you can handle it. Despite everything you’re going through, coming prepared for every possible scenario or challenge speaks volumes to your ability to lead a successful business.

Related: Embrace Change or Miss Out On Money — 5 Trends to Know in Venture Capital This Year

7. It’s just not a good fit

Rejection isn’t always something wrong with your business. Sometimes, investors say no because your company doesn’t fit well with their investment portfolio. Every venture capitalist has a specific investment strategy that they adhere to. It’s how they became successful in the first place. They’ll occasionally take a chance on a business idea outside their realm, but that’s only if they feel confident it’s a can’t-miss opportunity.

For some, it might be less about the industry or market and more about your company’s growth stage. Regardless, do your homework on the investors and firms you’re meeting with. What’s their typical profile? What markets do they usually go for? Do they tend to invest more in Series A funding or other rounds? Like any other interview, you need to know who you’re talking to and have your questions ready.

These are just a few examples of why you might not get the support you’re hoping for from investors. It can come down to countless factors, some within your control and others not. The best advice I can give you is to use every rejection — every “no” — as fuel to improve your business, your product, and yourself until you find that one “yes” you’re looking for.

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