Why do you get a ‘NO’ from Investors or get ghosted?
But why is that? What triggers the sudden change making them go from “super interested” to “can’t be bothered to reply”?
Still today, many company leaders do not do their homework and simply pitch left, right and center. They pitch a fintech idea to a medtech investor. They pitch an early-stage investment to an investor focusing on series A or B rounds with minimum ticket size of half a million and more. They pitch a US-based company to investors focusing on Europe and Africa deals only. In such cases, where you do not match the investors investment preferences - such as the industry, stage or geographic location - you will logically get a ‘No’, as you are out of their scope. And, you might even be perceived as unprofessional and as wasting their time.
You might present an interesting idea, but have a weak Product Market Fit (PMF). What investors want (and need) to see is validation of your idea. To validate the product and the business model. To validate the demand by seeing tangible traction. And, of course assess the possible growth and mainly (international) scalability of your company. As scalability means more growth, greater company valuation in the future and much greater chances of exit and therefore liquidity for the investors down the road. If your idea is nice, but too local, not scalable or showing no traction in sales, often investors disengage and focus on other deals that show just that.
The people behind the business or idea are still considered one of the key elements to convince an investor to invest. They do not invest into the idea only, but into the talent leading it. That is why investors often conduct a proper “team due diligence” in order to understand the dynamic, skill and compatibility. Does the team have it all to make this business a success? - they ask themselves. If they spot that crucial expertise is missing, if the current distribution of ownership is unequal (dominated by one majority holder) or see just a solo founder behind the business, they may raise their concern or simply rather wait and see how the company performs in the next few years before they invest.
Lastly, even if you pitch to the right investor investing in your industry, stage and location, and you show perfect traction and a strong team behind - the timing might be simply off. The investor might be defending shares and reinvesting in their portfolio company, or they just invested in a real estate property, or another investment sparked their interest, being somehow more appealing than your offering. Here all you can do is keep in touch. Keep them close to your business, so that when you open your next round, they will be beyond eager to invest.
But what are the 3 less-known reasons why you don’t get a ‘Yes’ from Investors?
The sad reality is that 99% of investment proposals are not investable. The materials shared with investors are almost always incomplete, where key information is missing. For the investor, it would take a lot of time and hassle to request and finalize all the missing elements to even start their due diligence process. It would cost them too much time to find out if it is a good deal for them. Mainly, if it’s a “cold deal”, not coming through an introduction or referral by a known (and reputable) contact of theirs. If they see the deal is not investable and ready for investments, they also know it will stay on the market for a bit. Meaning, they have very little urgency and pressure to decide or do the legwork. They can simply wait and see if another investor takes the lead or they drop the deal fully, focusing on other proposals which are much more investable and “ready to go”.
It’s the nightmare of many company founders to get their valuation calculation right. Some use the DCF model, some the VC Valuation method and others opt in for guesswork. The issue is that many still offer overpriced valuation estimates being beyond unrealistic, presenting no valid assumptions to the Investors on how this number was even calculated. When the investor requests more insights and to understand the return on their investment (ROI) to expect and the liquidity outlook, the company leaders often do not have an idea. The situation becomes even more tricky, when the company presents terms of investments which are unsignable. Including requests or clauses that are putting the investor under much more risk and uncertainty of ever seeing an upside after their investment.
As easy as it might sound, still many company leaders “don’t speak investor”. They overwhelm the investors with facts and figures related to their business. It’s all “me, me, me”, not describing the deal from an investment perspective. What is the unique investment opportunity offered to the investor? - this question is often ignored, even though it’s pretty logical. Every investor wants to know how and when they will make money,...and how much. The founding team therefore needs to understand the investor’s interest, ambition and expected rate of return - and present the deal to them from their perspective.
Familiarize yourself with all seven reasons why investors say ‘No’ and avoid getting ghosted during your next fundraising campaign.
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