The real reasons why a VC passed on your startup by Sarah A. Downey

TL;DR - VCs often do not tell the founders why their proposal was rejected. This source lists numerous legitimate reasons.

Helpfulness - 5

Topic Tags - founder advice, equity, VC rejection

Questions answered:

  • Why did that VCs not invest in your startup?

Summary:

  • VCs say no normally because of “VC’s personal interests, portfolio, or history.”
  • Exceptions can be made when a startup does not fit VC requirements only when the team, product, and market is exceptional.

The following are common reasons VCs say no and an explanation for each.

  • The opportunity’s not big enough: the business structure does not the potential to “return the fund”
  • You’re too early to market: VCs believe your product will be great but in the future. The public needs time to realize your product is amazing, and VCs don’t want to fund you just to keep you afloat before your business grows profitable.
  • No (or weak) competitive differentiator: People can copy this product extremely easily
  • Unfavorable macroeconomic or regulatory trends
  • An existing, more established company could do it easily: big companies have lots of product lines, if they were to release the same thing your startup was doing, that’d be bad.
  • This is a crowded space: Too much competition, this also might mean the VC does not believe in your team when it comes to marketing, sales, and standing out
  • Founder or team dynamics: Too many co-founders (3+), too many dominate figures, not enough market experience
  • Missing a key person: This isn’t a problem as much if you can hire the person, but if VCs deem your team is missing a crucial cofounder with skills in a field, it would be bad.
  • Founders aren’t mission-driven: Founder lacks passion
  • Lack of focus: Startup is trying to do too many things too fast. The VC believes you are spreading yourself too thin (too many markets, models, prices, products, services, etc)
  • Personality/behavioral red flags: VCs often won’t tell the founder if this is the case. If the founder is racist, sexist or rude VCs often will not back them.

There are dozens more, pointing the founder to the reading may be better for simplicity’s sake.