Five insights as to why investors say no.
Insight number one, investors say no because entrepreneurs make rookie and basic mistakes.
Think about it. If you show up to take a test without having done your homework first, you're probably not going to get the A and similarly, if you don't do your homework before pitching investors, they're probably going to say no. Let's look at some examples. First, don't pitch investors without researching them first. They may not even invest in your industry, in your geography or your stage of growth. So, if you're not targeting the right investor in the first place, they're probably going to say no.
Also, don't blast out your pitch indiscriminately to hundreds of investors. They already receive their fair share of cold emails. So, if you haven't already obtained a warm introduction through a mutual contact or a personal connection, they might just pass. And don't forget the importance of timing. You want to avoid pitching investors in the middle of a market meltdown or in the dead of summer, when they've just left to go on vacation with their family. If the investor is not receptive to you in the first place, they might just say no.
All things being equal, investors prefer to do business with entrepreneurs who are truthful, who possess integrity. So, if your character is questionable in any way, investors will probably say no. But similarly, if you're acting cagey and you're asking an investor to sign a legal non-disclosure agreement before you share any information or you've posted nasty things about your ex all over social media, investors will probably say no.
Also, don't be too salesy or overconfident. Investors know that if it sounds too good to be true, it probably is. So, if you're promising that you have no competition or that if the investor doesn't give the money now, the opportunity won't be there, they're probably going to pass. And don't use poor judgment in your funding ask. Investors want their money to go into the growth of your business. So, if, instead, you're proposing to use their money to pay yourself a high salary or to address some legal spat you've gotten yourself into or to pay down your debt, investors are probably just going to say no.
So, there's a running joke that the relationship between an investor and an entrepreneur can last 10 plus years, which is longer than the average marriage.
And that is all to say that the fit between the investor and the entrepreneur matters. And investors can often say no when that fit is lacking. So, don't only focus on an investor's money. You have to say what's uniquely relevant about them to you. If you can't articulate how they can strategically help you, in addition to just the money, they may just say no. Also, don't just focus on your introductory pitch. Pay close attention to the way that the conversation unfolds over time, how quickly you respond to their diligence requests and the quality of your answers.
Because if you are giving them the impression that it's difficult to work with you in any way, they're probably just going to say no. And don't forget to get them excited about working with you. Talk about your momentum to date and the great people who have joined your advisory board. If you're not generating an authentic feeling of "FOMO," "fear of missing out," it may be easier for them just to say no.
Because no matter how much you prepare for the pitch or how much you click with the investor, if the fundamentals of your business itself are not strong, investors are probably going to say no. What are the key topics here? First, don't focus on small or highly competitive markets. This is the difference between pitching a corner restaurant versus software that could go in all restaurants. If you're not presenting a big, multibillion-dollar opportunity that competitors can't easily replicate, investors may just say no. Also, don't just pitch an idea. Show traction.
Investors know that ideas are a dime a dozen, but the execution is what really matters. So, if you're not showing things like initial customers or partnerships or accolades, investors might just say no. And don't forget about the numbers. You must, must, must know your financials, revenues, gross margins, metrics, profitability. If the numbers aren't compelling and core to your story, investors will probably say no.
It's quite possible that you've done everything right to get to this point and the investor still tells you no. And the truth is investors are human. And any great investor should be humble enough to admit that they make mistakes too. But then what? What do you do if you remain one of the 99 out of a hundred entrepreneurs who keeps hearing no? Well, it could be a sign. It could be a sign that you need to change course or maybe even consider shutting the business down. Or it could be an encouragement for you to double down on your business, to refocus on the business fundamentals and to make your company stronger. Because if you make your company stronger, the investor may eventually change his or her mind. Or you may make your company so strong that you don't need that outside capital after all.