21 Reasons Your Potential Investors Said No

Spending most days around the businesses and startups based here at REPUBLIC OF WORK, rarely a day goes by where I won’t get involved in a fundraising or investment conversation; either with a startup trying to raise, or an investor who’s looking for a bit of an inside track on a startup that they’re looking into.

I’ve noticed recently a lot of frustration on behalf of investors that I talk to regarding basic mistakes and errors that businesses are making in their approaches. Based on those conversations, here are 21 Reasons that your potential investors said no to you;

1. You Spammed Them

I can’t believe that I even have to start with this one, but based on my conversations with investors, apparently it’s a common issue so *sigh* here we go; DO NOT mail merge/spam/or blast out your pitch deck and cover email to every investor email address you can find. Nothing says ‘We are morons you should never return an email to, not to mind invest in’ more than a generic pitch that’s clearly gone to multiple people.

Try wandering around a nightclub looking to get lucky making a generic pitch and see how long it takes everyone to realise that you’re the creep worth avoiding. In case you don’t know, Investors from different funds talk to each other very very regularly; do you want it getting around the investment community that you’re that guy/gal?

2. You’re Talking To The Wrong Investors

Investors tend to be relatively laser focussed on the things that interest them. As such they’ve usually agreed on a set of criteria around their investment fund in terms of what, how much and when they’ll invest. Most funds also have preferences in terms of the industries and areas that they’ll invest in which is often connected to the industry experience of the partners in the fund.

I think most people make in a mistake in thinking that when they look at an investment portfolio that investors won’t want to invest if they already have similar companies in their portfolio when the opposite is actually true. Investors are trying to make efficient bets, if they believe that a particular sector is ‘hot’ they’ll often make several bets in that sector with companies that are approaching the sector or problem in slightly different ways.

3. Transparency

Don’t make investors pull information out of you and don’t try to hide any faults or flaws – be upfront and straight about any gaps. Investments are built on trust and relationships. I’ve often seen investors invest in people who impress them but have an average enough idea because they know the idea can be worked on. I don’t remember ever coming across an investment where the idea was so good it made up for the fact that the founders were assholes, or were less than honest with the investors during the pitching process.

4. Gaps in Founding Team.

Great companies are built by great people. But it’s essential that the people come with a full spectrum of the skills needed. Products need to be built and products need to be sold. These tasks require vastly different skill-sets that are rarely possessed by the same people. Probably the most common problem gap is where a group of people try to build a startup or business based on technology, believing that they can outsource the development of that technology instead of paying to develop it in-house. It’s like trying to win the All Ireland Hurling Final without having any hurleys for your team.

Lately, one of the gaps that seems to be materialising is experienced sales people with RELEVANT experience. Sales is an incredibly specialist skill set, that’s quickly becoming a science in the same way that marketing has gone from an art form to pure data-driven science. Just because someone has a head for business, that doesn’t make them an effective salesperson. The old car showroom way of selling is so out of date at this stage – no one ever sells anymore by just putting your product in front of a customer and talking about its features. This is worth a post on its own that I’ll get on to in the next few weeks.

5. Your Legals Are Messy

Two founders each dedicating 100% of their time to the business, two shareholders, each 50/50 – that’s the dream starting scenario for most investors. For any variance outside this, its vital that all your legals make sense. Warning signs include people with chunks of equity where they haven’t paid in money, or aren’t 100% full time committed employees. Someone who’s getting equity for X hours per week that they’re going to ‘help out’ sets off huge alarm bells.

Most of all legals refer to actual physical signed documents, you and your buddy agreeing over a chat that you’’re 50/50 shareholders means absolutely nothing.

6. Why Will You Be Successful?

What’s different or special? What’s your unfair advantage? What makes you the one in ten companies that will actually survive? There has to be something special that makes you stand out; just being a safe bet definitely isn’t enough to get you an investment.

7. A Moat/Secret Sauce.

Slightly related to the previous point, but If a company doesn’t have something that is proprietary that makes it defensible against potential competitors, then its success will lead to its downfall. Without a moat, the company’s success is easily replicable. The more success it has, the more competitors it will attract. But if it has a secret sauce — which could include technology, processes, knowledge, relationships, etc. — its odds of survival are far greater.

8. No Proven, Scalable Sales & Marketing Channels.

An investor’s dream scenario is that you’re coming to them with your sales and marketing model worked out i.e. if you spend X on marketing its going to generate Y in sales, so if the investor gives you 100X, you can use it to generate 100Y. Investors ideally want their money to fund revenue growth so that the company is more valuable. If a company has not yet identified cost-efficient marketing channels that are scalable, then they are more likely to burn through capital experimenting and testing to find them. We prefer to invest in companies that have already done at least enough of this initial testing so that they can use our investment to scale the channels that are working. As has already been mentioned, Investors need to understand where the sales expertise is coming from, who is going to run the sales process and how is performance going to be measured.

(Sidenote – Growth hacking is about optimisation. To use a car analogy, its the fine-tuning of your engine. You don’t growth hack a car that won’t start).

9. Bad Accounting/No Plan for What You’re Going to Do With The Investment

It’s amazing how many people think that a set of accounts for your investors is a project for a leaving certificate accounting student. Your accounts have to tell an actual story, not some make-believe story, good or bad you have to be able to account for and justify the financial decisions you’ve made to date.

And you need to have a very solid plan for how you’re going to deploy the capital that you raise if you’re lucky enough to get it. Investors arent going to put a chunk of money in your bank account just so you can sit there are look at it.

10. No Confidence in How You are Going to Build Your Product

Investors need to have complete confidence that you have a realistic plan for building your product and are capable of executing it. Immediate alarm bells go off at the mention of ‘outsourcing’; any technology focussed company has to be capable of building at least the MVP of its own product, how else will they be able to manage the process of getting to Product-Market fit. In the early days, feedback from customers will result in dozens and dozens of changes to any version of your product, it’s really not feasible to be outsourcing this work.

11. KYN (Know Your Numbers).

This is the one that should go without saying, but sadly it’s getting more and more prevalent. If you don’t understand how much money you have to spend to produce a euro/dollar of revenue, you’re in trouble. Know which metrics are important to your business. Show how you are properly measuring and calculating those metrics. Most importantly you have to show that you know which levers to pull to affect each metric and which metric’s need to be tweaked in order for the business to succeed.

12. Realistic Valuation.

This will definitely be the subject of a future post. It’s probably worth reading this recent post as well.  Summary: your company is valued based on its current (not future) value. That valuation is based on the current availability of money in your local market, not what’s available on the west coast of America or other markets.  Bad news for Irish startups looking to raise your first money, there’s a bit of a credit crunch going on at the moment.

13. Raise the Runway.

Raising money requires a lot of time and effort and distracts founders from growing the business. How much money can you raise? Tough question! Often it seems like the figures are just picked out of thin air – why raise 150k when you could raise 350K. There used to be a standard rule that for an early seed stage startup could reasonably ask for 18 months runway, those days are gone really. But it is important that there is some logic to the amount of money that you are trying to raise.

14. Uncoachable CEO/Team

This is probably the single biggest issue that I’ve heard from Investors. Almost every single one of the other issues listed here can be talked around, assuming that the team are willing to listen and take outside advice from people who have a lot more experience that them. If you think you know everything better than everyone else, you’re dead and buried before you even start.

15. A Big Enough Problem (TAM is too small).

We often see companies that have innovative, sometimes ingenious, solutions to a problem faced by a relatively small group. The sad truth is that the Total Addressable Market (TAM) is just too small for the business to be meaningful.  A product that every single household in Ireland uses is still nothing in a global market. In order for a company to achieve exit velocity, it needs to be addressing a large enough market to make its upside revenue potential meaningful to an acquirer. If a company can’t demonstrate that the size of the market that its solutions address is reasonable then its really, really hard to get investors to bite.

16. Pre-Revenue or Pre-Ship.

We find that there is a disproportionate decrease in investment risk relative to the increase in valuation when a company makes its first sale. In other words, the risk decreases more than the valuation increases once a company graduates from pre-revenue to building and shipping a product for which someone is willing to pay. Thus, we think it prudent to invest after a company has made this first sale and has shown some early evidence of product-market fit.

17. No Vision.

There’s a huge difference between a dream and a vision. Dream away about being the next Facebook, Apple, Tesla, Blue Bottle Coffee. But unless you have a vision for how you’re going to get there, do it in private. Investors like to invest in companies whose founders have a clear vision for how to grow the company to 100x its current size.

18. Don’t intimately understand your competition.

“We’re first to market, we have no competition”; that’s probably the sentence that will end your meeting right there and then. How is your target market currently solving the problem you intend to address? That’s your competition. If you can’t find them, then its very very likely that you have found a problem that people just don’t care enough about to pay for a solution.

As well as knowing who they are, you should intimately understand the solutions and products being offered, how they sell them and who they sell them to. You should be running Google Alerts for at least 5-10 of your competitors so you can spend time daily understanding how your market is changing and evolving and how your competitors are reacting to it.

19. No skin in the game.

Founders are people who are 100% dedicating their time to the success of the business. At a bare minimum, they need to be working full time on the business. Ideally, they have significant personal funds tied up in the success of the business as well. Investor’s like to be able to easily understand everyone’s motivations that they are getting into business with. This is very easy if everyone involved has something to lose if the business goes belly up.

20. No Bias Towards Action

Investor’s like people who get stuff done and take quick action. In fact most investors I talk to prefer early stage startups to be obsessive about action. They want to see things happening and would rather see quick failures corrected than a wait and see attitude or slow moving action. Nothing impresses investors more than immediate follow-ups on the day of a meeting with the extra info that they asked for. A founder who sets the tone and pace of the investment interaction is showing a maturity that will serve them well in a sales environment as well so.

21. You Handle Rejection Badly

There’s a whole pile of reasons that now might not be the right time for a particular investor; that doesn’t mean you should torch the building on your way out. If you are raising money once, it is very likely you will be doing it again and as already mentioned having a reputation in the investment community for throwing your toys out of the pram is pretty much a death knell for any hopes of raising investment from anywhere.

Still, Just Keep Getting Better

There are easily 100 more reasons why investors decide to pass on your investment opportunity but hopefully, some of these might save you some effort.

If you’re professional during your interactions, one of the most valuable parts of the investment pitch can be to ask for feedback. If you ask in a genuine way, most investors will be happy to share the feedback. Something peaked their interest, they want you to improve and maybe come back to them at a point in the future, so keep that relationship friendly and cordial.

If you need help or advice, hit me up at me@dc.ie (it’s always free).


I've spent a lot of time starting, scaling and building businesses. Now I'm helping others start and scale theirs through REPUBLIC OF WORK and BUILTINCORK.

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