Focusing on your core strength applies to both fitness and startups.
Doing a startup is like running a marathon…a marathon with an unknown distance. Make sure to get the support from your fans and supporters along the way and pace yourself. Oh yeah, and you will most likely be running up-hill most of the time.
25 Ways Your Startup Will Get Turned Down By Investors
If You Aren’t Getting Rejected on a Daily Basis, Your Ideas Aren’t Ambitious Enough.
After speaking with a number of fellow “Hustlers” (fellow fundraising CEOs), I was able to amass an awesome list of classic messages people have received from investors after initial contact or initial pitch. As the title implies, below are 25 ways people get rejected from investors.
Maybe I am a bit weird, but I tend to find rejection as a fuel to my fire. When I was in college, I got the Chicago Crains Magazine List of top 300 companies to work for. I hacked the list and mail merged “personalized” letters and applied to over 290 internships. I received over 250 rejection letters but got 3 offers. I plastered the rejection letters over my door and highlighted the part where they told me why I was not a fit. My favorite letter was from McDonald’s (corporate). It had a watermark of Ronald McDonald and friends. I can say that I was rejected from McDonalds. Ha!
In grad school, I kept my 2 rejection letters (I got in the third try) from Stanford pinned above my desk. I found it both funny and motivating.
After going through two successful venture fund raises for ShopWell, I found it fun to create this top 25 list of rejection messages from investors that I, and others in my network, have received. I hope you enjoy as much as I do:
General Lack of Interest or Uncertainty
- No response
- We don’t see this as a fit at this time (the classic non-answer)
- I was regrettably unable to get it over the finish line with my partners.
- We are hesitant to invest as the lead, but keep us informed if you get a lead term sheet.
- I’m unsure on this one. Let me set you up with one of our associates who has more expertise in this area.
Bandwidth
- I am currently overwhelmed at the moment, and can’t spend the time pursuing this any further.
Competitive
- We see this being competitive to one of our portfolio companies.
- We have concerns that there are not strong competitive barriers to prevent others from doing what you are doing.
Market Thesis
- We want to see how [insert portfolio company] plays out before we invest again in this space.
- This space is too fragmented at this point for us to see a clear cut winner.
- We don’t currently have a thesis on this space yet, and therefore are going to need to pass.
Firm Fit
- We tend to invest locally, and you are located too far away.
- You are slightly too early for our firm and we can’t see around the curve yet.
- You are slightly too late for our firm at this time as we invest earlier stage.
- We would invest if you had a local lead investor.
- We don’t have more room in the current fund to invest.
Product Market Fit
- I just don’t see people doing [insert primary action of your app] as a mainstream activity.
- We would be more interested if you included [insert random feature/technology] in your product.
Distribution and Market Traction
- We don’t see a clear path to cost effective user acquisition for your company.
- We would like to see more months of [insert metric] before we feel comfortable moving forward.
Monetization
- We are unsure of your business model and will need to see more proof points before we feel comfortable.
- Your market isn’t big enough.
Team
- We will feel more comfortable if you have added a/team of [insert hire(s)] to your team. There is too much team risk in this competitive environment.
Company Structure
- We don’t like the cap structure of the company.
Other
- I left the firm and therefore cannot make investments on behalf of [insert firm] anymore but you should check out my new venture! It is so cool.
I’ll end this post with this classic:
UPDATE: I am honored to say this blog post was re-blogged on VentureBeat here. Thanks for all the supportive tweets I just completed a follow up post highlighting the inner dialogue of the venture capitalist here when turning down a startup.
So…When is the Best Time to Pitch an Investor and More Random Advice
I saw this question on Quora, and had to answer it. But before I begin, how about a classic shot from the oh-so-realistic show Shark Tank on ABC (since this is EXACTLY how venture pitches go).
About Timing
I have found that my best pitches were less of a “pitch” and more of a “conversation”. These more conversational pitches have tended to be during lunch or at the end of the day (especially on Friday). My experience here may be an outlier, but during these more conversational pitches, I was able to successfully get the investor to like me (first) and then like the company (second). By being outside of the constraints of a one hour time limit (end of day) or at a lunch hour (when people are more conversational), I have tended to be the most successful.
Other Tips to Improve Your Odds:
Try not to pitch by phone
The odds are stacked against you over the phone as an investor is likely multitasking. It is also difficult to truly have the connection you can achieve with an in person meeting. In many cases, traveling long distances may not make sense, but know the odds are stacked against you over the phone.
Try to pitch a decision maker
The odds are extremely stacked against you when you pitch an associate. Associates are even more risk averse than partners. They would rather be wrong and pass on a good deal than recommend a deal that doesn’t look perfect to the partnership. Odds are, your startup will fail…and therefore an associate’s default is to pass with any sliver of doubt. Additionally, associates generally don’t have the track record, experience, gut, clout to spot and push a good deal through. They will need to go through others in the firm to get a deal through (who haven’t met you) and your chances will most likely be diminished significantly. Think of it as a steel gate in front of a steel gate that you will need to plow through on a tricycle. One gate is a pain in the ass. Two gates…well you have the idea. You probably gathered it makes more sense to pitch a partner (with the highest authority possible) who has the highest likelihood of falling in love with you/your company).
Get them to like you first
Forget your company…if the investor doesn’t like you (which they can probably determine within the first 60 seconds), they will figure out a way to pass on your company. Remember, the investor, if they move forward with an investment, will have to deal with you for 5+ years of their life. Make them want to spend that time with you….then convince them that you will bring home the $ Billions…
Now for the gratuitous shot of the Maltese Falcon:
Don’t mistake a clear view for a short distance
This video illustrates two start-up guys throwing around random web marketing buzz words. Super hilarious…but makes me feel a little bad for the guys who have to listen to pitches like this all day long.
Will Price: Learning How to Sell - Premature Pitchalation and Other Sins
Some great excerpts from Will Price on selling from a startup perspective from Sandler’s Rules: 49 Timeless Selling Principles and How to Apply Them:
Rule 2: Don’t Spill Your Candy in the Lobby
This rule is classic - “have you ever shared too much information, too soon?” In my rush to prove my credibility and the value of my product, I often jump right into an overview of what we do, why, how, who we do it for…all before we have even made it to the conference room. Another term: premature pitchalation - the prospect has no time to lay out their needs and asks and is bombarded by information overload independent of context. Needless to say, I am working hard to slow down and to let the prospect talk in order to allow for better fact-finding and qualification. Spilling your candy threatens to see you blabber on about features, functions, and issues of potentially no interest to the prospect.
Rule 14: A Prospect Who is Listening Is No Prospect At All
This one mirrors rule 2 , as Sandler asks, “are you selling or are you telling?” I pride myself on being articulate and able to explain a value statement well. To often, I believe that if I can lay out an axiomatically perfect argument, then the prospect, by dint of my logic and persuasion, will buy right away. While I believe strongly in being able to express myself well, I am working hard to listen, to ask questions, then more questions, and to make sure that the customer’s problems and goals are well matched with our offering.
Rule 17: The Professional Does What He Did As a Dummy - on Purpose
Here Sandler encourages the professional sales executive to ask simple questions, embarrassingly simple, questions to tease out information and to make sure there is total clarity. Are you comfortable with asking simple questions and leaving long periods of awkward silence? I am not, and I am working hard to allow silence to fill the room and for the prospect to fill it with information rather than for me to fill it with nervous energy and output.
Rule 30: You Can’t Lose Anything You Don’t Have
I’ve been guilty of spending far too much time on accounts that are failing to close. Am I worried the customer will turn to another vendor, that the deal will eventually close if I just keep humping it…? Sandler advises that one either close the sale or close the file - I need to do that better.
Rule 32: Get an IOU for Everything You Do
Often in start-ups, we are missionary sales people. We feel a huge need to prove ourselves worthy in order to break into large accounts. Accordingly, in our early days, I found myself doing lots of “free work” on the come. Sandler recommends that sales, by definition, does too much free work. The professional makes sure that the customer realizes that you are providing free service and that the IOU helps win future business. One of Flite’s major learnings is that we don’t need to do as much free work as we thought, that asking for clear understanding that the customer will commit to buy if you we validate x, y, or z through a pilot works. If the answer is no deal no matter what you deliver, then why do it? Get an IOU and be sure that any work on the come is tied to clear commitments to buy.
I learn more every day as I sell and found Sandler’s book a tremendous reference for putting into words and simple rules problems that I encounter every day along with useful solutions for how best to handle them.
My Presentation on Applied Startup Metrics on 3.17.11 @ 500Startups
View more presentations from Brian Witlin
What’s The Most Difficult CEO Skill? Managing Your Own Psychology.
It’s fucked up when your mind’s playin’ tricks on ya” —The Geto Boys
By far the most difficult skill for me to learn as CEO was the ability to manage my own psychology. Organizational design, process design, metrics, hiring and firing were all relatively straightforward skills to master compared to keeping my mind in check. Over the years, I’ve spoken to hundreds of CEOs all with the same experience. Nonetheless, very few people talk about it, and I have never read anything on the topic. It’s like the fight club of management: The first rule of the CEO psychological meltdown is don’t talk about the psychological meltdown. At risk of violating the sacred rule, I will attempt to describe the condition and prescribe some techniques that helped me. In the end, this is the most personal and important battle that any CEO will face. Read more here via techCrunch.
A Fundraising Survival Guide
This is an excellent, well written survival guide to fundraising. The content is scarily on point. It is a must-read for any aspiring entrepreneur or startup CEO.
