Here are few reasons why we will NOT fund you!

Every investor is different, but here are 22 reasons why you will not get funded (there are more but we’ll keep it short)

Compiled from many articles related to Funding and Investments. First Published on December 13, 2016

The reasons one early stage start-up gets funded and another doesn’t can be opaque. Some investors bet on the best engineering teams. Others bet on traction. Others are thesis investors. Other bet on returns. Others bet on chutzpah. Etc. etc. etc. …

So instead, we assembled a checklist of 22 reasons we take an immediate pass on investing in start-ups that are interesting. That otherwise might be worth digging in on more. So if you take some of these issues off the table, maybe, it will increase the odds in your favor with fundraising in general.

So, here we go:

1. 1. 1. 1.  Can’t See The Future.  We take it as a given you know your existing customers — even if it’s just 2 or 3 of them (ideally the more the better), and your existing market. But if you can’t tell us the future (in your market) at least 3 years out … then it’s hard for us to believe in your success. So we always have to pass here, no matter how good the metrics look today. The very best founders can see the future. Not perfectly. But far better than others.

       

      1. 1. “Quarterly MRR”, 100% Gross Margins, and Other Crazy Metrics. We are not expecting you to be a financial Guru. But if your metrics make truly zero sense, that’s a red flag. The biggest offender is “Quarterly MRR”, when founders combine three months of MRR into one number. This doesn’t make you look 3x bigger. It makes you look like you take us for a fool, or at least, are trying to pull a fast one over our eyes. Tell it to us straight, no BS. Gaming the metrics doesn’t help here. In the contrary it hurts your credibility.

       

      1. 1. Founder Misalignment / Wrong Founder as CEO. We need to know if the founders are going to break up in the next 12 months, the company can still make it. But it’s not a journey we want to be on. On a related point, more than 3 co-founders is also a flag. Not a deal breaker, but worrisome. Companies can’t be run well by a quorum. You need an “alpha dog” to make things happen, and we are looking for this leadership more than anything else. (and don’t mix leadership with Ego, we hate ego by the way…)

       

      1. 1. Exit Strategy Slide. We want to hear that you are building with an exit strategy in mind — or at least, trying to. Don’t try t be a unicorn. Give us a “Comparables Slide” instead comparing how other in your ecosystem did.  Telling us you have a plan to sell for $500M does not give confidence.

       

      1. 1. Lack of Understanding of the Competition. Almost everyone has competition. We get worried if you have no respect for your competition. But not understanding your competition? That’s a huge red flag!. Why do your competitors beat you? Why do you lose deals? What are they good at? — at least, on a relative basis? Yes, you have a few better features. Of course you do. That’s why you have paying customers. But how will the competitive landscape look next year, and the year after? And how will you adapt and be better?

       

      1. 1. They won’t Work For You. This one you can’t really control, but we only want to invest in founders that can build and lead a management team. Otherwise, you’ll stall out somewhere, you can’t do it alone and we can’t help you recruit folks that will.

       

      1. 1. Too Slow. And/or Late.  If it takes you a week to respond to an email. If you show up late and don’t email me ahead of time. If you don’t make an amazing intro, we are out.

       

      1. 1. Don’t Want Us. We really want to know that you want us as an investor. There are many sources of capital. If we are only a source of capital, we are probably the wrong choice for you. If you don’t really think we might be able to be the most useful (smart) investor to you, at least a certain stage … then it’s probably not a good fit.

       

      1. 1. Party Round. This isn’t an absolute, but we don’t want to be one of 20 investors in the round. We’d prefer to be the only investor, or if that doesn’t work, one of the 2 big ones at least. 20 investors? Well, no one is on the hook for helping the company. No one has “skin in the game” as we always say.

       

      1. 1. Convertible Debt and SAFEs if Round Size is Material.  If you are raising $500k, anything is good, debt, SAFEs, IOUs, MOUs. But $2m+ on debt or SAFEs? 95% chance we are out. No one really cares as much here. So you are raising too much without anyone with enough skin in the game. Who is going to help you raise the next round? Recruit the VPs? I won’t if we don’t have enough vested in you. So it’s easier just to pass here.

       

      1. 1. No One on the Board Representing the Investors. This is related to the last two points, but if no one is going to be on the board to at least represent all the investors, we are out. We don’t want, need, or care about control. But we do care about fiduciary responsibilities and checks and balances.

       

      1. 1. Any Inappropriate, Sexist, Locker Room, or other Such Comments. If you think there’s even a 1% chance you’re saying something offensive, just don’t bring it up. There are 100 reasons this isn’t OK. We don’t just mean the blatant stuff. I also mean slightly more subtle stuff. Even best case, we won’t believe you can build a unicorn if we feel at all you aren’t committed to building a truly welcoming and diverse environment. Best case, 50-90% of the world won’t really want to work for you. That’s a problem.

       

      1. 1. Can’t Get to The Point. I don’t need 28 slides on how everything is Going To the Cloud. The pitch really should take less than 5 minutes. The pitch really should be distilled to one slide. we’ll make a Go/No Go decision in 5 minutes, and a tentative decision in 20 minutes. If you aren’t done with The History of the Internet by Minute 21 — It’s Hopeless. Stick that in an Appendix.

       

      1. 1. Want to Have Coffee First. Some of us drink 4 cups a day. But we don’t have time for this. We have infinite time to meet with great founders doing something great. We have no time to meet for that 5th cup of coffee to “share notes” or “talk about what we’re doing”. So forget the coffee or drink.

       

      1. 1. Will Only Send Me Information in “Proprietary” Format. Sometimes we will read a locked DropBox, or a Protected Box document, or a docu-send. Sometimes. But usually, we won’t. We will move on. Send us a good old fashioned PDF as an attachment. Together with your model as a Google Sheet or .XLS. Whatever is so secret, just keep it out of the materials. Use these amazing, limited visibility products for sales. Or even for angels, it’s fine, a good idea, use them there for sure. But not if you want us to write you a $1m, $2m, $3m+ check. Show me you trust me. Not that we are one of your 300 sales prospects. Maybe we don’t deserve the trust yet. But fundraising is all about building TRUST.  If I feel like 1 of 300 … I’m out. Right or wrong (maybe, wrong). Remember this!

       

      1. 1. Telling Me the Price is Going Up.   If the price goes up, and it’s still good for both of us, so be it. But telling us the price goes up at Midnight isn’t the way to build a 10+ year relationship. But again, this may work well for small angel checks.

       

      1. 1. Messed Up Cap Table. If you wait to raise $2M on a $6M pre-money valuation, but you already raised $5M on a $15M pre from, say, an odd mix of funders … this is too hard for us to fix. It’s not a complete No, but usually, we will quickly pass if the cap table is too messed up and upside down (too many chefs in the kitchen). If you have a quirky cap table — acknowledge it up front and say we can work on it together. Then we may decide to be in. But we don’t want to spend time on companies that are structurally un-fundable, no matter what the other positives are.

       

      1. 1. CEO Doesn’t like Sales — and The Hunt. Because we believe in sales we think the founders, or at least one, has to be the one selling ice-makers to the Eskimos. But if you don’t really want to sell, we are out. The converse is, a great hacker/engineer that has also learned to love sales. Well then, that is the gold combo — that’s something special.

       

      1. 1. Don’t Understand How I Can Help.  We need to know how we can truly help you move the needle. We don’t want to be just a capital investor, but bring in added value to the deal. If we can’t help you recruit a management team, help you drive upmarket, promote you, help you scale … then that means there’s someone better than us out there for you.

       

      1. 1. Not Aggressive Enough. Follow up. (this is a huge problem with many, they fail to follow up!) Get us what we need. Don’t be reactive. If you are too passive, then … can you really sell? Can you really compete? Maybe. But we worry.

       

      1. 1. Bad Crazy. You have to be “good crazy” to build a great startup. It’s just way too hard. You have to recruit too many people, suffer too many dramas-failures, too many near deaths, too many cancelled deals and no’s, too many lost partnerships. You have to be good crazy to build a great startup. Anyone sane will sell before that. But be respectful. Be aggressive, but not a stalker. Follow up once a week, but not once an hour. Make us believe you will be the Sherpa dragging your team to the summit.

       

      1. 1. Too Balanced. Sorry about this one. We know some will flame us for this. But too many hobbies, too many vocations. It’s healthy. It’s balanced. But building something big in the startup world is way too hard. We  really want your avocation to be the same as your vocation. We don’t want you in the office 100 hours a week. Actually, we don’t even want you in the office 40 hours a week — we want you out with customers, signing us deals bringing in sales (it’s all about sales folks).   But when you’re home. When you’re out to dinner. When you’re relaxing at the beach. Even when you’re with your family. We want you obsessing about your company. Not your wine collection. Not because we think this is healthy. It’s not. But because we think it’s what it takes to win. This is sad to say, but any successful CEO will admit that while Family Comes First, it actually comes second. This is sort of awful. It takes its toll. But it’s also generally true.

       

      This is just our views and philosophy. Others feel differently. But if you see just a few weaknesses on this list in yourself, maybe, make few changes for a better chance at getting funded.