No and what it really means

Given that we fund about 1% of companies we meet with, I try to give entrepreneurs I meet with some advice and/ or a sense of what would make their company interesting to us as an investment.  I figure it is the least I can do for them spending the time to share their company with me.  As I see it, every no can be broken down into two categories. Either your vision of the company is not one that we find attractive as an investment, or we don’t think you have a high probability of getting there.  Below is a list of common reasons that companies get rejected from my experience and what they really mean.

Your market is too small –

VCs invest in big and growing markets.  In general we all have similar views on market size in most cases (we are looking at the same numbers).  If you are hearing that the market is too small ask yourself if there is a logical expansion strategy with synergies to the core business model that increase the market size? Potential ideas include geographic or vertical expansion.  Market size is frequently tied to ARPU.  If your market size appears to small demonstrating that you can extract a larger ARPU than the VC is anticipating effectively increases the market opportunity.

To early –

This can mean several things.  You simply could not have hit minimal milestones for the fund to get interested.  However more likely this means that the risk reward profile as it is perceived isn’t attractive enough against other companies looking for our money. This is particularly true in crowded spaces – if there are a lot of companies trying to solve the same problem VCs are more likely to sit on the sidelines and wait to pick a winner.  When raising money it is important to remember that your competition is every deal the VC is looking at.   Think about how to de-risk the business prior to investment.

Bad idea –

The good news is that if you get a meeting than the VC probably doesn’t think this to start with.

We don’t buy your Monetization strategy  –

Usually the only solution to this reservation is demonstrating that the consumer is willing to pay for your service. Depending on the type of business letters of intent from customers can go a long way.  If you are seriously considering raising money for an ad-supported content play look long and hard at what monetization rates others are getting in the marketplace, convert it to a realistic ARPU and figure out how big you really need to get to attract venture funding.  The answer is very big.

Bad feel on the entrepreneur –

You likely won’t hear this but it happens.  If you miss represent anything or have very unrealistic expectations your done.

Bad fit for the company –

This is ironically the best one to get.  If it is a bad fit they will refer you around.  VC is a massive interconnected web.  Firms have favorite other firms but know most of them.  If we like you we will try to help. However we wont refer a deal to a fund that we don’t think is potentially a good fit.

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