Why a VC Firm May Reject Your Proposal

For several companies, securing finance is a big obstacle. This is especially valid for companies searching for venture capital (VC). A mere 0.05% of companies are financed exclusively by VC funds, according to fundable reports. Likewise, the venture group unreasonably predicts that the chances of a startup backed either by an individual investor or a VC are about 3%.

When a company wants to collect funding capital, it's easy to see the figures and get disappointed. Your company is improbable to be financed automatically, and many modern marketers encountered hundreds of refusals before receiving "yes" from a VC. Even during its first try, Airbnb could not get an investor. With that said, it's sensible to brace yourself for the fact that the VC firms you pitch could turn you down. Here are a few common explanations why VCs reject a startup to help you understand why a VC would not invest in your company.

There are innumerable reasons why VCs are going to turn down a startup, and not all of them have to do with your particular business. Although investors can refuse opportunities due to questions regarding the business model, founding team, or market momentum, for either of these market-related factors, they can also deny "healthy" startups. But there are also some hidden reasons that they reject proposals, have a look:

Bad timing:

The legitimate explanations for VCs to miss on an investment opportunity is becoming too early or too late to offer. As the retired venture capitalist Robert Carroll states, "Trends come and go, and so do investing prospects," and you're unlikely to get financed if you're off the curve. On the other side, unproven innovations, which are the first of their type, are also viewed as too risky.

Strong rivalry:

The amount of other active players in your business may influence the likelihood of getting financed by your startup. VCs could turn down a company that is attempting to invade an increasingly crowded space, or one with a real rival who could easily do the same thing, according to VC and Angel investor Sarah Downey. Carroll also mentioned that investors might also be required to dismiss a rather large startup because they already have a competitive business in their holdings.

No potential:

As Downey states, VCs are striving for "10-fold, 100-fold, or even 1,000-fold returns." Your company may become productive and thriving in the market sector, but if a fund manager doesn't see it ramping to the point of tremendous ROI, you probably won't get financed.

How to react to a VC rejection:

Rejection by a VC firm is not the end of the line, nor does it mean you will only obtain financing in the future. Nonetheless, if the VC takes the opportunity to justify why they've declined to participate, you will carry those insights into the next investor presentation. That's why business strategist and founder Patrick Henry advises that you press for clear input anytime you are dismissed by a VC. Henry notes that collecting this knowledge will help you find gaps in your marketing plan and change the placement of the company to be more stable and appealing.

Concluding thoughts:

Although we can still claim that the company has good potential, it is not easy to guess the secret factors why VCs will claim no to an investment. Our approach is to embrace such elements as part of funding and persevere before you have the correct investor on board.