This week I gave a presentation for The Midday Connect on marketing to investors.

You can check out the video or read the summary below.

The idea here is that marketing to investors is like marketing to any other target customer, it starts with understanding them. So these points are designed to help founders empathize with investors and understand some reasons investors might say “no” that they don’t often share.

Here goes…

Reason 1

You’re not swinging for the fences.

This is the power law of investing. Usually there’ll be one deal in a fund that returns more than the rest of the fund combined. If you don’t look like you at least have a chance of being that deal, then the investor really can’t take the risk on you. They just can’t afford to do it.

Reason 2

All companies at the startup phase include flaws that could metastasize and kill the company.

All of them.

That means it’s a hard place to make money. And that means investors have to be picky.

Reason 3

The cream didn’t rise. Investors often don’t make as many investments as you think. If you’re company is the next best one… you still don’t qualify for that investor because they can only afford to look at a narrow band at the top.

Reason 4

The relationship loses momentum.

I’ve seen this a bunch of times where an investor comes back to you and says, okay, I would like to see your financials (or some other due diligence item) but you’re not prepared.

It takes you three weeks to get back to them with financials, and by that time they’ve moved on. By then, they’ve seen ten more deals.

Reason 5

No dry powder. Dry powder is money to invest. Investment funds have lifecycles, so sometimes even active investors don’t have money to invest.

Still, they likely believe good deals are scarce. So if your company sounds good and you come by and want a meeting, they will still take the meeting.

Reason 6

The Goldilocks principle. This can impact check size, industry, and other investment criteria. Oftentimes people are looking for something that’s subjectively not too hot, not too cold, but just right.

Reason 7

Wrong industry. Institutional investors often have a partnership agreement with their LPs that includes an investment thesis that says they will focus on a certain industry. They may only invest in tech companies, for example.

These days they may only invest in AI companies, and they don’t have freedom to change that.

You can parse this out by looking at what they’ve invested in before. It’s a pretty safe bet that their previous investments match their investment thesis. And if your company doesn’t match they can’t invest because you’re not in the right industry for them.

Reason 8

Wrong place. Sometimes investors are thinking about things like, “If I invest in this company am I going to have to travel long distances for board meetings? There’re plenty of companies here in the Bay area. Why should I invest in a company in Salt Lake City?

Reason 9

Portfolio Mix. The portfolio mix colors decisions. Let’s say that they’ve already made an investment in an inferior competitor to you. They’re still not going to invest in your company because they’ve already invested in the competitor.

Or maybe they have companies in their portfolio already and they are looking for new investments that are complementary, but your company isn’t? Even though it’s totally out of your control, portfolio mix can keep you from getting investment.

Reason 10

An ugly capital stack. This is one you can actually do something about.

If your capital stack is ugly and some other company looks roughly equivalent but their capital stack is clean, why would investors go to the headache and expense of investing in a company they have to clean up?

Reason 11

Social proof. It turns out that investors are human beings. They’re influenced by things that influence human beings.

One of those things is social proof. If you’re raising money, the most difficult investor to land is the first—nobody wants to be the first kid in the pool. In this case, if you have that first investor, the social proof will help you get others.

Conversely, if nobody else is interested in your deal that makes it tougher.

Reason 12

Last on my list is you need a champion inside the VC firm. You need somebody who has the authority to green light investment in your company if they really believe in it. At least you need somebody who will go to bat for you when you’re not there and who believes in you and in your company and will represent that to the rest of the firm.

Bonus

Know when to say “no” yourself. Not all money is good money. This can be really hard when you are desperate for money, but figure out what a bad deal looks like. What are your deal breakers?

The better you understand them the more prepared you’ll be when a term sheet comes across your desk that you shouldn’t accept.

Until next time… namaste.