4 Common Reasons Investors Don’t Invest and What Founders can do About it

Isabel Russ
May 6, 2019 · 5 min read

To set expectations right: at Speedinvest we invest in less than 1% of the startups that we take a look at (and that number even excludes e.g. the companies that we see at conferences). So, don’t be too disappointed if it doesn’t work out for this investment round. There are lots of reasons why an investor decides not to invest in a startup at a given point in time. In order for founders to understand why investment rounds don’t work out and what they can do with investors’ feedback, I’ve compiled a short list of the most common rejection reasons at Speedinvest and what they mean for you.

Wrong stage: too late

Our typical investment ranges from pre-seed investments with an average of EUR 100k up to seed investments of up to EUR 1M. If you’re raising a Series A above that ticket size, we’re most likely a too early stage investor for you (although we could opportunistically still participate in your investment round, but that is only a matter of exception, e.g. if we already know the founder from previous ventures). While it would always be possible to participate in a bigger round with a smaller ticket size, the ownership stake has to be large enough to make sense in terms of fund economics. So if the fund has a different stage focus or it’s simply too small for the round you’re raising, the only possible conclusion for you as a founder is to approach other funds.

Wrong stage: too early

Even though we also do pre-seed investments, I’ve already rejected startups based on the fact that they were too early for us. What it means in this context is that we simply couldn’t get confident enough, based on the current traction, that you’re developing the next unicorn. Our requirement for pre-seed investments is that if we saw your startup again in 6–9 months we would want to lead your seed round. We might like the idea, the market or the founders, but without some proof from the market, we might not be convinced enough that you will get there.

In this case you should offer to keep the investor updated. A nice way of solving this is to start a mailing list with potential investors and when you’ve made significant progress you send out a lightweight “newsletter” (of course with an opt-out possibility). Meaningful progress means a significant growth in user count or revenue, an improvement in conversion or retention or an amazing new hire. Don’t tell investors that you’ve moved offices or scored a meaningless award. And: none of this will happen within two weeks. VCs will follow-up with you if they’re interested, we all have strong FOMO. Or, instead of a newsletter, if you have 2–3 investors with which you’ve had closer connections, send them an individual email after a few months, summarizing your process and asking whether they would be willing to resume conversations.

Not a VC case

A lot of the times when we decide not to invest in a great company we simply can’t get confident enough that the startup will be able to satisfy the growth requirements as set by our fund economics. You’ve probably read about this: in order to guarantee returns to our investors, we need to find and invest in startups that have the potential to be “fund returners”, i.e. the proceeds that the fund receives from an exit scenario should cover the whole fund size. To give an example: for a fund with EUR 20M under investment and assuming a 10% share in the company, the exit proceeds should be at least EUR 200M. Note how the size of a fund puts pressure on the size of the exit as well as on how much the shareholding matters for a fund.

Lots of times we meet promising founders that are active in markets which simply don’t lend themselves for exits in this range — or founders that don’t seem to be willing to scale their companies in a way that would grow their company into a fund returner. In these cases, the founders might be building great businesses, but we will not invest given that we don’t see them fulfilling our investment requirements as a professional fund.

Not reaching PMF

Sometimes we are simply not convinced that your company is currently on its way to hitting product market fit (PMF). It’s difficult to define PMF because it differs for every business and there is not a single number that you can hit to prove that you’ve reached PMF: one definition is that you’ve found a solution to a problem that is so relevant to users that they are willing to spend resources on it. If we don’t believe you’re there yet, you’re either simply too early for an investment or we’re not convinced by your current business strategy.

Of course we’re not always right and maybe you just know the market better than us. But if you receive this feedback from more than one investor, I would advise you to go back to the market, speak to your customers and find out if the pain point that you’ve decided to solve is really big enough and if the solution you’re offering is really alleviating this pain point. Then, build a minimum viable product that offers the minimum features to solve the pain point and iterate on this version (always listening to customer on the way).

Again: if we don’t invest in your company, it doesn’t necessarily mean your idea and team is not good enough. It just means that every fund has a limited number of investments that it can make, and for early stage investments, each one of it carries significant risk. So we have to be 100% convinced that there is a mutual fit before we decide to make an investment. Reach out to us at www.speedinvest.com to see if there is a potential fit with your company; and if not, we’re happy to at least provide valuable feedback that will enable you to further progress your company.


5 focused investment teams. 20 in-house, operational experts. 100% committed to your success.

Isabel Russ

Written by

Passionate about understanding things and changing them for the better. Here: writing about my experiences in the European VC/start-up world


5 focused investment teams. 20 in-house, operational experts. 100% committed to your success.

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