Venture Capitalists on Why They Pass on Startup Opportunities by Marcia Layton Turner

Venture Capitalists on Why They Pass on Startup Opportunities

VC funding can catapult startups from struggling to exponential growth, but landing such an investment is challenging. Make sure not to fall into the common traps.

by Marcia Layton Turner
updated September 25, 2020 · 3 min read

Not every startup is a good fit for venture capital (VC) funding. Although venture capitalists certainly have money to invest in high potential companies, they are also extremely picky, and awash in business opportunities.

Start-up business presentation discussion by whiteboard

"We have so many pitches we can't handle them all," says Manny Fernandez, co-founder of OurZones and an angel investor himself.

To get off on the right foot, Chad Stender, SeventySix Capital managing director, says, not to just ask for money, but make the case that there is a particularly alluring partnership to be had. "Be able to explain why SeventySix Capital (or another VC) is the ideal firm to add value to your startup," he says. Make clear why you believe there is a fit. SeventySix Capital, for example, is hyper-focused on the intersection of sports and tech.

If you do make it into the room and you have the chance to pitch your business to VCs, make sure you're not sabotaging yourself. Here are some common reasons VCs pass on business pitches:

Pitching an Incomplete Presentation

In addition to putting together a winning pitch deck, it's critical to know your numbers inside and out. The details should be second nature. Or, as Stender says, "Have your complete pitch, including financials, down to a science."

If you can't answer in-depth questions about your operations or how and when you'll become profitable, don't bother, Stender says.

Staffing an Inexperienced Team

Alex Euler, investment director at CIT GAP Funds, focuses heavily on the startup team.

"VCs want to see a company that reflects a balanced team with amicable relations and both technical and business acumen," he says.

Euler says he will typically pass on teams that "are not populated by one or more individuals who have intimate knowledge of the market problem they are trying to solve."

Also, Euler says he stays away from potential business leaders who "have a low level of self-awareness," meaning they are not aware of their own strengths and weaknesses.

Demonstrating Resistance to Coaching

Kate Brodock, CEO of Women 2.0 and founding partner of the W Fund, says she steers clear of startup leaders who or unwilling or unable to consider fresh perspectives.

Venture Capitalists on Why They Pass on Startup Opportunities

"I've seen way too many companies fail because the founder isn't open to viewpoints other than theirs," she says. "If I sense that founders aren't actively listening, are 'excuse-making' in their responses, are dogmatic, or don't seem like they're going to accept alternate pathways, I pull out."

Presenting with No Supporting Evidence

Building a strong business case is essential to attracting the attention—and enthusiasm—of VCs. Not having evidence to support your case is a surefire way to end a conversation.

"Having evidence to support whether a market is ready or not, versus having an opinion, is the difference between a swing and a hit in startup investing," Euler says.

Offering No Clear Path to Profitability

"We don't have a huge interest in investing in companies that are going to just go out and get eight rounds of funding and not focus on getting in the black," Brodock says. "We ask them, 'What's your Plan B if you weren't to close this round of funding? How long until you self-sustain?' [If] they look like deer in the headlights, we aren't interested," she says.

The good news is that if you can avoid these pitfalls, your odds of at least hearing back from a venture capitalist dramatically improve. But also consider that venture capitalists may not be the best place to start.

Fernandez suggests that venture capitalists shouldn't be your first ask. "If you are just getting started, raise from angel investors first, build traction, and then reach out to VCs."

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Marcia Layton Turner

About the Author

Marcia Layton Turner

Bestselling, award-winning writer Marcia Layton Turner has authored, co-authored, or ghostwritten more than 50 nonfictio… Read more