Investors said no for my startup, now what? | My notes from the YC video
YC says, believe the no but don’t believe the why
What to do when an investor says no to investing in your startup ?
Don’t lose your confidence because of investor rejection because,
- The founders are the experts on the product the market
- Everything founders are doing, they think about the product and customers day in and day out
- So they shouldn’t get shaken by investor as they jst spent 30 minutes, it’s not the most engaged 30 minutes that they have spent.
What are the lies that founders are telling themselves when they get a rejection from an investor?
- This investor is an expert and they are telling me the truth.
- They know things because they have a following on the Twitter and they tweet about this market all the time
- They worked at a company in this market at some time in the past
- They work at fancy fund X, therefore they know everything about what i’m doing and whatever they told me in the email must be the reason and the problem with my startup
NOTE: In YC, it happens less than 1 percent of times that we read an application and we can confidently say that we know everything in this space and we are qualified to judge this idea. (This almost never happens)
Investors may have a passing understanding of what you’re doing but almost by definition if you’re doing a startup there’s something new and novel about it and you are the expert, not the investor. So whatever the reasons they’re giving are not like canon um they don’t know any more than you do.
Note: Investors almost always know much less than the founder and you should know that a little bit of knowledge can be dangerous.
Investors don’t have the deep insights because they are not in it building the thing and this is the reason investors have a 90% failure rate.
Also as investors, you don’t want to invest in someone who is relying on you for product insights.
Imagine this, investors spend 2 minutes giving you feedback and later hear that you have pivoted your entire company because of it. This is not a good signal.
Most common reasons for which an investor will reject you but won’t mention in the email.
- Not having a technical co-founder
- Having negative margins
- About to run out of money
- Building a non-software product (this investor likes to invest in softwares
- company hasn’t grown much every time founder pitched again
- The product hasn’t been launched
But the investor will say something like the market is too small and founders end up believing in that.
So don’t believe much in the investor’s why.
What should the founders do when they hear the same rejection why from investors again and again?
They may say things like
- The market is too small
- Unit economics doesn’t make sense
But the takeaway is, still don’t believe the why.
Put your own mind, assess the why, and dig into it.
Think about it.
Do you as a founder think that’s a real problem?
Listen to feedback but don’t take it at face value.
Take the feedback, and note it but don’t internalize it or absorb it into your mindset for the company. Know about it but don’t soak it in.
What are the reason reasons for which investors reject you and what are the ones you should pay attention to?
- While conversing, Investors didn’t see you as a person building, running, and leading a large organization. You don’t seem similar to other successful founders they have interacted with.
- Communication issue, they didn’t understand what you were saying.
- They don’t believe your numbers, especially if you gave them conflicting numbers.
- You don’t know the space, haven’t studied the market, or haven’t talked to the users and don’t have good real insights.
What the founders should do?
- Keep the list of investors who said no and who seemed reasonable about it.
- Keep sending them updates every month.
And shockingly if things start going well, those same investors will reach out.
For investors, it’s not like once they said no, it’s a no forever.
You can’t convince them to change their mind with words but you can surely do that with your actions.
So instead of losing your confidence, stop fundraising or like massively change your product based on some rejection email, if you just change the facts of your business and make progress.
Most often investors will look at progress in your business as a better signal than any modification in your deck or words in your pitch.
When asks founder asks us what do I say to this investor to get them to change their mind?
We (YC) say, tell them about the 10 new customers you just closed.
To conclude :
- Believe the no, don’t believe the Why
- As long as you are confident, there are always more investors out there.
This note has been created from the Y combinator video https://www.youtube.com/watch?v=euZH0tVotPQ
Using Askify note taking tool.
Find this same note with video time stamp here at https://askify.video/share?_id=4f18db64-7d5f-4f0a-b938-a03ea446bc75