The vast majority of startups that reach out for Venture Capital are turned down numerous times prior to receiving investment. The reasons they are turned down often have no correlation to their ability to succeed (See Top 10 VC lies).
Instead it often comes down to what a VC’s portfolio already looks like, where they are at in their funds life cycle (typically ten years) andthe need for support from multiple partners (not just one partner) for approval (to name a few).
Here is a short list of startups that were initially rejected by VC’s (sometimes by dozens of VC’s) that went on to receive funding from other VC’s or bootstrapped and went on to become billion dollar companies:
Salesforce, Skype, Airbnb, Etsy, Google, Twitter, Pinterest, Instagram
It sounds crazy after the fact but the bottom line is that most VC’s state that they want “innovative” “industry disrupting” startups but when presented with them often decide not to invest.
Some of the reasons:
- Don’t really get what you’re trying to do because they don’t understand the target space
- Not enough traction (sales revenue)
- Willing to invest – but you need to find a “lead investor” that will complete the due diligence
- Don’t believe in your startup idea
- Too late in their investment cycle
- Don’t have the people resources to support their investment
- Don’t believe your team has what it takes
The other thing that few VC’s will tell you about is the “Lemming effect.”
VC’s are often afraid to be the first investor in something completely new. If one VC has decided they want to invest, it can seem like all of a sudden you have a great idea and a number of VC’s think your startup is a winner waiting to happen.
Your Startup was rejected for venture capital, now what?
Grit, determination, desire to succeed and unwillingness to give up are core founder requirements. Quite frankly, building a startup is one of the hardest jobs on the planet. If you’re not willing to face rejection on a regular basis (especially in the first years of your “overnight success” story) running a startup may not be the right fit for your skills.
One way I train startups to think about funding is going back to their first high school dance. Everyone wants to dance with the prettiest boy or girl but the reality is that folks often have to ask and engage with a number of partners before they find their dance floor match. Obtaining funding is similar. You can’t stop or let rejection slow you down. Learn what you can from each rejection, don’t take it personally, when a VC provides specific reasons why they won’t invest counter with “If we do XYZ, then you’re willing to fund us. Is that correct?” If they say no, then don’t make any changes to your strategy / focus and just like the dance floor it’s time to say “next” and get back to it. If they say yes, get it in writing and work towards that XYZ while continuing to court other capital opportunities.
Never, assume an investment is a done deal until you have the signature and cash in the bank.
Just like the world’s greatest athletes, top startup CEO’s have an innate belief in themselves that they will succeed. Your startup needs to have that type of personality to succeed.
I like to think of it like this: “If I don’t think beyond a shadow of a doubt that we can succeed, why would anyone wish to invest?” Startup CEO’s must believe and display that winner’s charisma in the funding chase.
Don’t give up, keep fighting. If you’re idea has merit you will find a way to succeed!
Good luck and please tell me about your capital raising journey!
David is a Director at Sentia, the next generation CRM- VDA sales enablement Technology Company. Dave’s passion for helping businesses with their sales, marketing, business strategy, startup growth and strategic planning has taken him across the globe and spans numerous industries. You can follow him on Twitter @intlmktentry LinkedIn or on Sentia Says.