Top 10 ‘Real’ Reasons Why You Didn’t Hear Back From The VC

I know this piece is going to be controversial, and might lead to several heated debates. But, as part of my endeavor to remove information barriers between entrepreneurs and the VC community, I will still go ahead and write it.Most VCs see thousands of b-plans over their investing period, eventually funding only an extremely small number. Very few drop out during term-sheet negotiations or diligence, a handful reach the Partnership presentation stage, and only a few hundred go through multiple rounds of meetings and discussions. But overall, I would assume 8 or 9 out of 10 plans don’t go beyond the first meeting or con-call.

This funnel itself makes the fundraising process extremely frustrating. However, more than this, what frustrates entrepreneurs the most is when post the first meeting or concall, the VC just vanishes off the grid. Often, the reasons for lack of interest are not communicated properly and even when they are, they seem implausible, unclear or just plain stupid.

It’s important to understand that it’s just not about team, traction, competition etc., the usual and well-known points VCs use to evaluate deals. Behind the scenes in the big bad VC world, several factors are at play, several of which can’t be communicated explicitly to entrepreneurs. Let’s have a look at Top 10 such factors that might get a plan ‘unreasonably’ rejected. You might find some of them to be logical, while a few others will come across as plain stupid. But then, who said life was fair anyway!

1. Clear conflict with the VC’s investing mandate – for instance, a spa chain founder pitching to a technology investor, a project financing mandate being sent to an early stage investor, a real estate mandate being sent to a tech VC etc.
2. The VC has no money to invest – every fund has a fixed investing period, during which General Partners (GPs) deploy their gun-powder. Unfortunately, if you are pitching to a fund whose investing period has ended or is about to end, you will receive an abrupt rejection, no matter how good other aspect might be.
3. The VC has already burnt hands in the sector – if the investor already has an existing failed portfolio company in your sector, or had one in a previous fund, your odds of getting a follow-on meeting get drastically reduced. Call it illogical or nonsense, but that’s how human behavior works.
4. The VC professional you are speaking to is already running 3 other active deals – as VC investment professionals, we are a greedy lot and want to source as many deals as possible, without realizing the Partnership’s, or our own, bandwidth constraints. If you happen to be unlucky enough to pitch to a professional who is executing multiple other deals, rest assured, he will move slowly on your venture.
5. The venture falls in the VC’s ‘black-listed’ sectors – there are certain sectors that GPs in every fund black-list; what this means is that based on prior experiences and in-depth industry research, they just don’t believe in them. If your venture happens to fall in this set, expect no more than a courtesy phone-call.
6. The entrepreneur chose the wrong month to pitch – yes, you heard it right! There are a few specific months where VCs are inactive in deployment. These could be holiday months (May, December), Limited Partner meeting months (varies from fund to fund), major festivals etc. Just avoid these times!
7. Your first email or phone call put the VC off – clear red flags for VCs include curt emails, use of rude language on the phone/ during the meeting, discussing valuation in the first interaction, disinterested body language, running down or talking with disdain about the fund, having a ‘you-are-stupid’ expression or ‘what-the-hell-do-you-know-about-my-business’ expression etc. etc. Just be nice and normal!
8. The entrepreneur/ banker are continuously following up with incessant phone-calls/ emails – one follow-up in 10 days is good enough.
9. The VC got ‘unethical’ vibes during the meeting or con-call – signs for potential ethics-related concerns include frequent name dropping, explicit willingness to bend rules, narrating prior experiences of cutting corners or bending regulations etc. This is a binary risk for an investor, and even the slightest hint will often lead to a clear reject.
10. Finally, the VC thinks the deal is ‘not-doable’ – as VC professionals, we know that getting a deal done requires enormous amount of internal consensus building and several other factors falling in place. Most of these are very idiosyncratic – Partner X doesn’t like this sector; the overall Partnership has a liking for founders with prior P&L experience; some VC teams dislike US-returned NRI entrepreneurs, other are not so averse; some GPs like IIT-IIM-Ivy League combinations, others appreciate operational experience a bit more; a few funds have shown clear dislike for consultants/ Investment Bankers turning into entrepreneurs while some have a clear soft spot for sales and marketing backgrounds and prefer them over core technology experience. Since very few deals get done anyway, every VC professional would rather spend time on deals that can be closed, which in turn, means a raw deal for several ventures that don’t fit the bill.

Several, or in fact all, of the above reasons can be extremely frustrating for entrepreneurs, especially because there is nothing founders can do to allay them. In fact, most are outright unfair. Which brings me to 2 points I frequently say to entrepreneurs I meet:

• Stars need to align for a venture to get funded. And I mean, literally!
• Whether or not the venture gets VC funding is, by no means, a reflection of its quality and potential. Simply because, the whole process is so terribly unpredictable.

Hopefully, the next time you don’t hear back from a VC, knowing some of the possible reasons behind it will help ease the pain (and anger!). As I always say, build the best business you possibly can, and money will chase you.