Reason #1: They simply don't like your business

Reason #1: They simply don't like your business

Sometimes VCs just don't dig your business. That’s it. It could be that they think your market is crowded, and all the competition will drive up your customer acquisition costs.   It could be that they don’t think your solution is differentiated enough. Or it could be that they simply don’t think you’ll win. The thing is, VCs can be a bit like high schoolers avoiding breakups. Instead of a firm "sorry, not interested", they might just ghost you. 

Why? Because burning bridges is bad form. They want to keep things warm and fuzzy in case you become the next big thing.

Not all VCs are like this. At Hustle Fund, we don’t play those games. We prefer our interactions to be transparent. But sometimes there’s a price.  Here’s a true story. Eric Bahn said no to a very early pre-seed round of a company called Coin Tracker, which was like TurboTax for crypto.  Eric had some concerns about the valuation and didn’t know how big crypto would be back in 2017. However Coin Tracker has since become a company worth nearly $2 billion.  Remember, VCs are humans. They make mistakes all the time. So just because they said no to you doesn’t mean your business is bad. Sometimes the VC doesn’t fully grasp your industry or strategy. 

Hot tip: Some founders will reply to a VC’s rejection email with “I’m gonna build a unicorn, and you’re gonna miss it.” Don’t do this. It’s not effective. 

Instead, say something like, “No problem, thanks for letting me know. I’m confident this market will be huge. Would you mind if I kept you on my investor updates and reach out again if things go well?”

Reason #2: Your business may not be scalable

Let’s imagine you sell trombone oil. Now stay with me. It’s incredibly important for trombone players to have trombone oil. It’s a necessary product with great product-market fit.  But how many trombonists are there in the world? Not many. The market isn’t big enough to support a billion-dollar company that only sells trombone oil. 

If you pitch this to VC Bob, he might give you a noncommittal “Let’s see how you’re doing in a few months.” Now over the next few months, you’ve discovered that your trombone oil formula could replace all industrial lubrication in manufacturing. That’s a multi-billion dollar industry. Now your business has a higher chance to give VCs the 100x return that they’re looking for. 

VCs look for businesses that can scale to a massive audience. If the market is too small or the business isn’t scalable, it likely won’t be VC backable. 

Reason #3: VCs are skeptical about your growth potential

It’s possible the VC doesn’t believe you can grow your startup fast enough to compete against all the other companies out there that are going after a similar audience. 

VCs are highly motivated by hyper-growth. Because VCs are looking for a 100x return on their investment, it’s critical that they believe your startup can acquire enough of the market share to get a massive return.

Angels don’t usually have that same requirement, which is why it can make more sense for some startups to go that route instead. At Hustle Fund, we invest in a lot of Software as a Service (SaaS) startups. After year 5 of our initial investment, we’d like to see companies reach $100 million in revenue. Yeah, that’s a lot. So a VC might tell you, "I love your product and your market, but it's just a little bit too early for us. Why don't we check in again in like six months?"

This is code that they may be skeptical about you or possibly some aspect of your industry. So they want to buy time to study it more, or wait to see your updates. 

If you still want to get funding from VCs, emphasize how you’d expedite growth if you had more capital. Show plans for customer acquisition. Prove how you can derisk the business

Final thoughts

VCs might tell you that your company isn't venture-backable for a few reasons: Maybe your business isn't their cup of tea, your market could be too niche, or they have doubts about your ability to achieve lightning-fast growth. 

Some of them could be wrong – like Eric missing his opportunity to invest in Coin Tracker. Or they may be right and this feedback can help you decide whether to raise from angels instead or work smarter to improve your business.