Venture Capitalist Dale W. Wood Breaks Down the 10 Reasons Investors May Have Said “No” to You, and How to Learn From it

As an entrepreneur, you will inevitably hear a few venture capitalists say “no” to investing in your idea. Research shows only about 1 in 100 pitches eventually gets funding from investors, but its a founder’s perseverance and refusal to be sidetracked by failure that will ultimately separate the successful from the could-have-beens. 

In the words of veteran investor Dale W. Wood, “Ideas come and go, but it’s hard work, careful execution, and unending persistence that make a great company.” Founder of Dubai-based venture capital firm Dale Ventures, Wood has said “no” to more ideas than he’s helped make it big. From his perspective, the most valuable thing an entrepreneur can do is shape their pitch to an investor’s unique decision-making process, helping clinch a deal with the right venture capitalist. 

Here are 10 reasons Wood says your initial pitch may have been rejected, and how to learn from every disappointment.

1. Unclear or misleading metrics

If your startup moves past the initial shortlist and venture capitalist management review, it is bound for a series of standard due diligence checks. It will typically take you 3 to 4 months to reach this stage, so always remember to be as transparent and as careful as possible when presenting your numbers. You don’t want to set yourself up for failure by muddling the truth. 

“Clear and transparent communication, properly defined goals and maintaining and building powerful teams are what make – and sustain – top-notch companies,” Wood said. 

No venture capital firm will come near you again if you give in to the temptation to present a rosier picture than what is reality.

2. Negative feedback from customers

Companies are all about customers. If your business puts customers first, they’re more likely to return to you, spend more and bring in more users or buyers. No business can survive without positive reviews, and negative feedback is critical to help leaders understand how to improve. By ignoring negative customer input, you’re allowing them to diminish the value of your business and your performance as a leader. 

When you come across a negative review, invest the time and effort to discover why it happened. Often, customers only want the reassurance of better service. When others see that your business addressed the customer’s problem, it will communicate that you care what your customers say and give them faith it won’t happen again.

3. An obvious lack of diversity 

Diverse teams are more capable of accepting disparate perspectives. Homogeneous companies are likely a red flag when it comes to a positive company culture, and potential investors will be hesitant to jump in because of a perceived inability to become more diverse as your company grows. 

The only lesson to learn from this is to be as diverse as possible, as early as possible.

4. Skewed time estimates for closing deals

The usual time frame for a funding deal from the pitch to the venture capital term sheet is 3 to 4 months. If you’re being too pushy or too lax with the timing of closing the deal, you may come across as unprepared or as if you have something to hide.  

Timing is a crucial element in investment decisions. Respect this, research a reasonable expectation and avoid being too pushy or too casual about your potential deal.

5. An unconvincing product differentiator 

When your company has a product or service, venture capitalists are unlikely to bet on you without a unique innovation not already available in the market. Without sufficiently clear product differentiation, you risk becoming part of the crowd. 

As an innovator and an aspiring industry leader, you must bring something new to the table. Ensure that you don’t present trivial or shallow features as differentiation. Instead, take the time to research, survey customers, learn about your potential customer base and develop the ideal differentiation. Nobody wants to invest in a company that doesn’t innovate or move an industry forward.

6. A lack of extraordinary ambition 

The way venture capitalists make money demands a business focused on huge goals. The investor ecosystem depends on the fact that only a few potential investments will succeed. To maximize their returns and minimize risk, venture capitalists need to see that you have the ambition to build the next big thing.  

Aim to have a Big Hairy Audacious Goal (BHAG). Anything short will undoubtedly throw investors off.

7. You seem unprepared 

Venture capitalists seldom know the intricacies of your business or your potential market. They are generalists, and can bring many valuable skills to the table, but it’s your job as a founder to give them enough reason to take a risk. If your pitch seems like an off-the-cuff affair, you may come across as unprepared or inexperienced.  

Know that how you’re perceived by a potential investor is almost as important as the company you’re pitching. The most significant factor in a venture capitalists’ decision to invest or not is their belief in the founding and management team. Do your homework, and come to impress. 

8. Inefficient pricing strategy

Having a great pricing model is a critical part of knowing whether your company will eventually become profitable or not. If your pricing strategy does not charge for the value you create, your revenue stream will become less productive as you scale. Instead of becoming more profitable as you grow, you will face bottlenecks in revenue.  

Make sure your pricing strategy has the potential to capture the value you are creating for your customer base. Ask for help from a mentor if you need it.

9. Your company doesn’t match the investor’s goals

Some venture capitalists invest in series A rounds, while others prefer seed funding. Each will have a specific investment strategy and different preferences in the company’s growth stage. If your company does not come within its area of expertise or match its strategy, a venture capitalist will be unlikely to proceed.  

It is up to you to do your research and find out the investment profile of the venture capitalist you are pitching. Find and pitch to an investor whose history matches your company’s growth stage and industry. Without prior search, it’s next to impossible to find the perfect fit.

10. You seem inflexible

Being teachable is one of the soft skills that many leaders overlook. Even though it is likely that most leaders have had to learn and unlearn in many aspects of their professional life, when it comes to running their business, there might be a level of hesitation to accept new ideas. 

Part of a venture capitalist’s job after they agree to fund your company is to mentor and grow your management team. If you are unwilling to learn or come across as inflexible, investors are likely to reject working with you. 

Final Thoughts

After reading this invaluable advice from Dale W. Wood, founder and CEO of Dale Ventures, you should have the perspective you need to judge your pitch objectively. Remember, each pitch you deliver may not convert to funding, but your pitch is all a potential investor has to make their decision. Rejection is inevitable, but learning along the way is the only chance you have at hearing that invaluable “yes.”