Why is it so hard to close VC funding?

QUESTION:

Why is it so hard to close VC funding?  I feel like it’s an impossible hurdle to overcome.

ANSWER:

Naomi Kokubo

Naomi Kokubo

by Naomi Kokubo, Cofounder of Founders Space

Don’t give up.  Every single time my partner and I went out for venture funding it felt the same way.  Between us, we’ve started and gotten funding for three separate companies, and each time we had a moment where we felt like you do.  But we kept on pitching because we believed in what we were doing.

Let me help you understand why it’s so hard:

  1. Right now, we’re in tough economic times and VCs are being very careful with their money
  2. VCs got burned by investing in early-stage companies in the past, and they are very cautious now
  3. Your company must have some sort of traction or you’re wasting your time — by traction I mean significant user and/or revenue growth

Let’s say you’ve got some traction and a promising business plan.  Well, it’s still hard, and here’s why.  Most VCs won’t invest in your company if a single partner (or even an associate in the VC firm) doesn’t like the deal.  VCs are looking for a reason to say, “No, we can’t do this deal.”  They are inundated with startups trying to get their attention and money, and they need to filter out the less appealing ones as fast as they can.   So if a single partner objects to the deal, it’s dead.

This can be very frustrating.  After countless meetings, you can make it all the way up to the partner meeting, only to have your deal killed by one naysayer.  Unfortunately, that’s how it works.  In most cases, you need to get every partner onboard, and this can be a high hurdle for many startups.   One piece of advice I can give you is to keep revising your business plan as you get feedback.  If someone pokes a hole in your plan, then make sure you fix it before you go to your next VC meeting.

Above all, don’t give up!   You’re the only one who can truly say, “it’s over!” — and it’s not over until you no longer believe in your business.  I hope this helps.

Comments & Advice:
  1. TweetDeckTV says:

    You have one person who is the inventor, the manufacturing head, the copywriter, the graphic designer, the sales department, the fulfillment department, and the CEO. That same person has a part-time day-job, and has slept on the floor and eaten ramen for a year in order to afford paying the USPTO $16,000. She wants to employ Americans by manufacturing this simple product and selling it worldwide.
    Yet, there are no new cars, homes, property, second income, or inheritance for her to leverage a loan. Two family members have been stricken or killed by cancer. At what point does this person give up? “When I am dead”, she says.
    Landed immigrants still get loans to open another convenience store. Yet the US government will feed off the blood of innovative, hard-working Americans until there is no tangible industry left on the continent.

  2. Budha Has says:

    1. VCs the world over, are in a race to multiply the money for their Limited Partners (LPs).
    2. VCs the world over, have been losing money for the past many years. There are very few successful VCs.
    3. Because they have got excited too many times in the past, and burnt their hands too many times, to trust your story – however fascinating it might sound.
    4. They want to makes only EXTREMELY safe investments.
    5. They want to makes only EXTREMELY scalable, $100M in 5 years businesses with solid traction, and revenues exceeding a Million dollars.
    6. And you sound dumb as f&#$ talking about 5 year projections without your first customer.

  3. John Frankel says:

    As an early stage VC all I can tell you is that I see or talk to hundreds of CEO's each year and yet we find only a handful of new companies to invest in. The competition is fierce and the hurdles are high.

  4. Foundups says:

    Consider this little advertised fact… 99.98% of Startup ideas fail to become $uccessful for investors. There are probably 100m ideas a year for a startup… according to Adeo 14m get submitted for funding, 24k get pulled out of the stack, 9k actually close and get built and only around 2,500 are deemed financial $uccesses! Sramana, a successful Silicon Valley entrepreneur and strategy consultant has a slightly lower rate of %99.97 :)And she uses the term “rejected” I talk about her 1m/1m initiative on mtrout.com. The current model is an institutional model and over the next 5-10 year, the good news is, it will become a collaborative one. My startup (foundup)is actually seeking to be a driving force to “Kill” the painful institutional vehicles: startup/VC/Seed investors; and in their place offer the Open Incubator(tm) (collaborative) framework and its fun and easy Foundup(tm)… my foundups.com presentation will probably interest you. My goal is simple… to bring down the failure rate to under 80%

  5. Yea, all makes sense. But I wouldn’t let them totally change your business plan either! You gotta go with your vision. Find the right VC! We’re going through that a bit now. And yea, we’re certainly open to change, and all companies should be.

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