#22- Why aren't you getting funded?
Reasons why startups dont get funded, from my experience
As an analyst supporting a full-service Family Office, I have had the privilege to engage with numerous founders who are building exciting startups, and consequently looking to raise funds.
Since the start of 2020, I have had the pleasure, and at times, the pain, of evaluating over 80 startups. We have also invested in 4 exciting companies at the same time.
Most startups get rejected. This is a well-known fact. It is not a big deal, since rejections are often stepping stones to success. But the worrying sign is the lack of feedback post the rejection that makes founders nervous and frustrated.
If I know what’s wrong, or lacking, only then can I improve? I need to know the problem for me to find a solution!
More often than not, most founders do not even get reasons for the lack of funding. And at times it is due to the lack of understanding, sheer laziness, and neglect from investors. Let’s not be holier than thou!
In this post, I am trying to highlight five key reasons why I might have declined to participate-
Does not fit the investment thesis
Let's face it, you can be something to everyone, everything to someone, but never everything to everyone! If you take your consumer product to a B2B SaaS fund, you are bound to be rejected! And it’s a good thing, because you want someone who is a specialist in your industry to fund you!
Marginal product/idea
Are you disrupting the industry? Or are you replicating an existing offering? This has implications! Your deck, your business idea, and all your communication should be easy to understand. If its an improvement on an existing service, most likely the incumbents will improve and overtake you - mind you they will have a more established and loyal customer-base than yours! Then what is your right to win in the industry?
Unit economics and financial understanding is weak
There are founders who do not even understand the basic concepts of Revenues vs GMV, Gross contribution, Fixed vs Variable costs, Breakeven points, Working capital! As someone who trusts you to handle our client’s money and hopefully return - we expect founders to understand, improve upon, and be on the same page with us regarding basic financial terms and concepts! Without measuring what matters (i.e. cash in, cash out, and path to profitability) founders risk themselves running out of cash far earlier than expected.
Far higher ask
I have encountered founders who want to raise a first cheque of straight 5-7 cr! Unless you have credibility in the market, previous experience, a solid network, and a fantastic product - finding the first big cheque is going to be very difficult! You either need a very developed and mature business model, or a strong on-going relationship to be able to command this sort of dry powder. Most investors are comfortable signing smaller cheques (1-2 cr) and follow up with larger amounts once there is confidence and understanding. Your fundraise should be in accordance with what milestones you want to achieve in the future, and not the other way around!
Lack of alignment of interest
We have loved a business model to not issue a term sheet in the end! And this is only because of lack of alignment of interest. There needs to be a meeting of the minds in order to stay on this long journey. But do you want to shortchange investors by keeping all the profits and distributing it back to the founding team as commissions? Do you get irritated with frequent queries? Do you want to create a phantom ESOP pool so we are not aware of who gets the options? Do you not want to give your co-founder enough equity? Then why are you happy diluting equity to us? Isn’t your co-founder more of a partner to you than we will ever be?
Today, it has become easier than ever before to start the journey of entrepreneurship in India! Founders with decent enough ideas, confidence, humility, and the ability to work alongside others will always get funding!
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Yes B2B in India is not a mature market. They still use the same methods of bargaining as Street side Vegetable vendors. That mentality is killing B2B business. We stopped bother B2B in India. After showing a massive innovation and show our products works wonderfully, they then ask can we get this at an 80% Discount.! Then I had to drop the discussion right there! Unless you are in burning need for India market, B2B is hardly any business in India
"If you take your consumer product to a B2B SaaS fund, you are bound to be rejected!" as you stated very nicely over here, it gets difficult for us to find the correct investor.