Why Investors May Say No, What To Do and How to Deal With It.


11/3/20235 min read

Understanding these factors will help you refine your approach and increase your chances of securing the capital your business needs.

What Does It Mean If You Are Turned Down When Seeking Capital Funding?

The top 4 reasons why investors may say no:

  1. Founder's Track Record

  2. Burn Rate

  3. Valuation and Pricing

  4. Return on Investment

What Does It Mean If You Are Turned Down When Seeking Capital Funding?

When a VC says no, what does that mean? Let me give you an insider’s look and decipher what they've said to the entrepreneur when he gets turned down.

They say, "I liked your company, but my partners didn't." In other words, no. if this person truly believed in the project, he'd vouch for you and get this thing going.

If they say, "If you get funding or a lead investor, we'll follow." And what that really means is, once your first round of financing is completed by someone else, we'd be happy to give you more, but let someone else take the risk.

They say, "Show us some more traction, and we'll invest." What that really means is, “I don't want to say no, because you may land a large customer in the interim. But right now, I just don't believe in it.”

They say, "We'd love to co-invest with other VC's or other angels." What it really means is, if your deal was worthy of a VC, they'd want it all for themselves.

When they say, "We love early-stage investing." What that probably means is a VC's dream is to put one to two million dollars in a pre-money company and end up owning 33% of the next Google. VCs aren't that risky. They only want to invest in proven teams with proven technology in a proven market.

Founder's Track Record

Is your track record good enough to start raising capital? While the track record of the team and the firm’s advisors are very important, investors usually first focus on the Founder of the firm or the CEO.

In general, investors look for CEOs who:

  • Has “been there and done that”;

  • Has specific domain experience/expertise;

  • Is aware of his knowledge gaps and actively seeking resources to fill them;

  • Is capable of attracting, hiring, and managing top talents;

  • Demonstrates a powerful sense of ambition or determination;

  • Shows a tendency of under commit and over deliver;

  • Understands the distinction between being employed and being an employer;

  • Recognizes the need of generating revenue while keeping the burn rate to a minimum.

In particular, investors look for CEOs with the following characteristic:

  • A charismatic communicator capable of conveying the firm's value propositions and attracting top talents;

  • A superb dealmaker that able to close big deals;

  • Have a high personal energy level and a strong desire to achieve goals and motivate others to accomplish above and beyond.

How to prove yourself to investors if you don’t have a track record?

Investors are more inclined to invest in someone who has a track record of doing the most of what they are expected to do in the future. It is crucial that you assess yourself as a CEO against the criteria given above. However, even if you lack a track record, your actions and words can make up for that when meeting potential investors and making them believe in you.

Don’t be too concerned with the things you do not know; being a founder is still “faking it till you make it.” The investor just want to make sure they work with smart, ambitious, and hungry founders who can engage and inspire both investors and customers.

Burn Rate

Burn rate is the rate at which a company will use its capital to finance operations before generating positive cash flow. It is usually expressed on a monthly or quarterly basis and is a measure of how fast a company will use up its cash. For example, a company with a burn rate of $1 million per month will exhaust $12 million in capital in one year.

This is of importance to investors because it helps them to determine if a company will be sufficiently capitalized with their investment and how long their investment allows the company to operate before becoming cash flow positive.

If an investor feels that their capital infusion is not enough to sustain operations for a long enough period, they will naturally assume that your company will require more financing in the future.

When burn rate is more than anticipated or sales are less than anticipated, companies usually respond by reducing burn rate, which generally means cutting expenses associated with overhead.

Accordingly, investors will look at your company from the standpoint of being able to reduce burn rate in the event that actual performance does not meet expectations.

Valuation and Pricing

The question that is probably at the top of the list for every entrepreneur seeking funding is this: “How much of my company will I have to give up to get my desired amount of funding?” The true answer is, “It depends.”

Investors consider many different factors and each investor knows what is important to them and what is not. That said there are some general questions that investors ask themselves when considering funding. Some examples are:

  • How attainable are the goals set forth in the company’s business plan? Sophisticated investors are sophisticated analysts. If they think there are items in your business plan that are unrealistic, they will normalize them to something they’re more comfortable with.

  • When will the company be able to go public or secure a buyer at an attractive price? The longer an investor has to wait for exit, the lower the value, or

  • What will the appetite be like for IPOs when the company is ready to go public? A bullish stock market will support IPOs at higher price to earnings ratios thereby raising the value of your company and reducing the amount of equity an investor will require in return for their funding.

  • How much does key management have invested in the company? If management has a significant amount of their own money in the company the investor will assume that management is committed to success.

  • How much of the initial investment will we get back if the company fails?

Once investors answer questions such as these, they will then begin to make adjustments to your business plan and consider their risk accordingly. It’s all about managing their risk and you need to be realistic in the actual value of your company to attract the real investors.

> Click here for more info on business valuation.

Return on Investment (ROI)

Different investors have different requirements. Investors generally require greater than 40% ROI for seed or start-up investment, 20-50% for first or second stage and 15-30% for third stage and mezzanine investment.

The amount of time an investor feels it will take to exit via sale or public offering will also factor into how much stock they will require in exchange for investment.

For example, an investor who gets 3 times their investment in 3 years will realize an ROI of approximately 44% while the same multiple in 5 years will reduce ROI to 25%. So, the investor in this case will require significantly less stock in exchange for capital if he or she feels an exit can be achieved in 3 years as opposed to 5.


So, there you have it. We've heard it all before. These are typical responses when they say no. So, be prepared to hear any of these and take it with a grain of salt.

However, there's always an investor to fund any deal. We just don't want a startup to shut down after the first one or two turn downs. We can help re-purpose the deal and adjust it and turn that "no" into a "yes." Just book a call.

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