8 Reasons Why No One Will Fund Your Startup.
TL;DR: You’re doing a terrible job of demonstrating why you deserve it.
Raising money for a startup can be extremely difficult for everyone, even experienced entrepreneurs. Its easy to find yourself busting your ass raising a round every 6 months for a 12mo runway. That’s annoying because as a founder, you time is better off spent executing on product/growth.
[Click To Tweet] PRO TIP: raise for an 18mo runway to give your startup ample time to execute on the last round efficiently.
Below are 9 of the most common cases of why you’re having trouble securing funding. I compiled this list from my personal experience watching 30+ live investor pitches, evaluating 500+ applications for gener8tor’s Minneapolis accelerator program, recruiting and interviewing hundreds of startups for said program. Hopefully this post can shed some light!
1. You can’t be found
Believe it or not, this is a thing. And it mostly applies to pre-seed/seed stage ventures. Imagine you’re an investor who’s found a potentially worth while startup on angle.co/f6s or crunchbase.
Naturally, you click the link to their website, and much to your surprise its down or its lacking proper contact info eg. email, phone, address, contact form. Do you spend 30min trying to find out how to get a hold of them, or move on to the next startup that does have the bells and whistles?
Make it easy for you to get discovered by having a website and proper contact info. Use common trends eg. email@example.com or firstname.lastname@example.org
2. You’re shady
Don’t ever give off this vibe, you will NOT get investment. This happens due to a lack of honesty and transparency with you potential investors. It can range all the way from answering questions incompletely/defensive to not disclosing the skeletons hidden in the financials or a brewing lawsuit. Please don’t be that guy, they will laugh at you later.
3. Not cash efficient
Do more with less. Imagine two competitors are raising a round from the same VC. 9/10 the VC will invest in the company that uses less money. That’s why its important to understand your financial metrics. ARPU, CAC, churn Rate, Burn Rate, Runway, Gross Margins and more. If your competitors can do more with less cash you become irrelevant.
4. Bad pitch/deck
Investors get pitched all day. Because their time is valuable, they've come up with a metal algorithm for evaluating businesses as well as founders on the go. Your pitch deck should be play to this advantage, help them help you by complying with their mental model.
A general rule of thumb is starting with traction, give them a reason to pay attention. Here is a quick write up! Do some more research though.
5. Lack of enthusiasm/effort.
Responding late to emails, showing up late to meetings, not fully prepared ect.
6. Toxic team dynamic
🤢If the team sucks, the product sucks. Make sure to gather an intelligent team that has camaraderie. Conflicts can be healthy, but only if you can come out of it with progress and mutual respect for each other.
If not, these feelings of contempt are extremely toxic and WILL cause damage. This also applies to investors and board members. It helps to seek counsel from someone you trust and who’s been in the same position or has seen it play out first hand.
7. Not venture bankable
If there is not a clear path to 1MM+ in YRR then you might not be venture backable. You can still have a successful cash positive lifestyle business, it just won't be venture bankable.
This is due to the fact that VCs have bosses called Limited Partners. LPs invest in venture funds and expect anywhere from 3–5–10X return on investment. Mark Suster has a really good post on Venture capital math.
8. Wrong funding channel
For various reasons, venture capital might not be for you.There are many more channels to rise money from such as crowdfunding, bootstrapping, angel money, grants, competitions etc.
Regardless of what series you’re at, you can can raise full rounds using a healthy combination of those channels. If you’re series A and up you might need a mix of venture money.
You started fund raising too late and investors are reluctant to invest because they don’t know you well enough. “The first time I meet you, you are a single data point. A dot. I have no reference point from which to judge whether you were higher on the y-axis 3 months ago or lower. Because I have no observation points from the past, I have no sense for where you will be in the future. Thus, it is very hard to make a commitment to fund you.”