3 Reasons Why VCs Might Say No
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Thank you Hustle Fund for letting us borrow a post about the inside track on why a VC would pass on your company.
What do investors see as red flags?
What if an investor offers more money than I need?
Do investors care if you have a co-founder?
You might think that a pitch is going well if the questions are easy for you to answer, and the investor is smiling politely. But that's not always the case. If you find that investors are asking you tough questions, that typically means the investor is interested in the business and wants to dig in more. But sometimes tough questions put people on the defensive. And a red flag for our team at Hustle Fund is when founders get SUPER defensive, or even dismissive of the questions or ideas that we bring to the table. This is because a defensive founder indicates that s/he may not be a coachable founder. Now, you should feel free to push back against an investor if you have a different opinion. Especially if you have data to back up that opinion. But there's a difference between being a jerk and holding your ground. See, we're looking for founders with growth mindsets. People who are open to receiving new information and hearing new perspectives, then changing their world view based on that new information. It's a big red flag when it appears the founder lacks that mindset.
Do not take more money than you need. Especially to satisfy a VC. We believe that founders should protect their cap table ownership as much as possible. So if you only need a little bit of money to hit your milestones, or to get to profitability, just raise that much money. Don't give your cap table away for cash you don't need. Instead, tell the VC: "I don't need the cash." Not only is that a nice flex, it's also possible the VC will change their policy to have the opportunity to work with you. You may also consider raising from Angel Investors rather than VCs. They tend to be more flexible with check size and are often strategic partners who will roll up their sleeves to help.
The Hustle Fund team has backed plenty of solo founders. But other VCs may have a bias against solo founders. And there are reasons for this. For starters, being a founder is a hard and lonely journey. It may be challenging to stay motivated during the tough times if you don't have a co-founder. Co-founders also often bring important and complementary skills to the business. Skills the business needs in order to hit important milestones. Last – having a co-founder demonstrates that you can work well with others... an important indicator of a good leader. Now, there may be a workaround. If you can make the case that you've got a team around you that fills the necessary gaps to achieve the milestones you’re going after, that will be a big help. Being a solo founder with no team is not typically something investors want to see.