Over the last 10 years I have met with thousands and thousands of founders and backed over 170 startups.
— Alex Iskold | 2048.vc (@alexiskold) September 2, 2022
Here are the reasons VCs pass on startups - some are rarely discussed and rather personal and nothing you can do about them.
Here we go
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1. KNOW IT ALL
— Alex Iskold | 2048.vc (@alexiskold) September 2, 2022
The founder never says - I don't know.
They are not just convinced in the their idea, which is great, they are convinced they are ALWAYS RIGHT.
Investors are looking for founders who are on a journey of discovery, curious and flexible.
2. FOUNDER IS NOT HONEST
— Alex Iskold | 2048.vc (@alexiskold) September 2, 2022
My mentor @davidcohen used to say - as soon as the founder caught lying - they are out.
Whether embellishing numbers or their background or anything else - lacking honestly gets an immediate pass from investors.
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3. FOUNDER IS NOT LIKABLE
— Alex Iskold | 2048.vc (@alexiskold) September 2, 2022
This is a really tough one and is never talked about.
VC investments are long relationships where they work closely together with the founders.
If investor doesn't like a founder, they don't click, then investor will pass.
Painful!
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4. FOUNDER IS NOT COACHABLE
— Alex Iskold | 2048.vc (@alexiskold) September 2, 2022
Some investors, especially at an accelerator stage, maybe looking for coach-ability.
I don't agree with it personally.
I look for ability to synthesize feedback which is a bit different.
Still many VCs would pass because founders argue back!
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5. FOUNDER LACKS EXPERIENCE
— Alex Iskold | 2048.vc (@alexiskold) September 2, 2022
Another tough one.
Many investors don't like to back first time founders because they think that founders will mess up building the team and the business.
Some funds just focus on repeat founders and first-time founder won't get a check.
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6. FOUNDER IS A SOLO FOUNDER
— Alex Iskold | 2048.vc (@alexiskold) September 2, 2022
Many VCs feel that solo founders are a non-starter.
If solo founder is non-technical, then tech may not be great.
If solo founder is technical, then they may not be able to sell.
Not me, but many feel it is much harder as a solo founder.
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7. THE FOUNDERS ARE A COUPLE
— Alex Iskold | 2048.vc (@alexiskold) September 2, 2022
Old school VCs would never invest in a team thats in a relationship. Thats because troubles at home might spill out into the business.
Many couples start businesses these days, still many VCs are skeptical.
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8. ODD CO-FOUNDER DYNAMIC
— Alex Iskold | 2048.vc (@alexiskold) September 2, 2022
Been on those calls when co-founders are quietly or openly hating on each other?
Any odd dynamic between co-founders is perceived as a major risk to the business and will cause VCs to pass.
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9. CAP TABLE IS A MESS
— Alex Iskold | 2048.vc (@alexiskold) September 2, 2022
If you have significant % of the cap table gone - a non-operating co-founder for example, or early angel you gave 20% to, VCs may pass.
Messy cap table also signals you don't value enough / don't know how to manage the precious equity in your business
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10. FOUNDER IS DON'T KNOW THEIR NUMBERS
— Alex Iskold | 2048.vc (@alexiskold) September 2, 2022
You HAVE TO INSTANTLY know ALL numbers around your business. All of them. No excuses.
Your actual revenue, ACV, CAC, COGs - all relevant numbers, and if you can't answer quickly, it might be an instant NO.
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11. VC KNOWS THE MARKET BETTER THAN THE FOUNDER
— Alex Iskold | 2048.vc (@alexiskold) September 2, 2022
If the founder hasn't done enough homework it is an immediate pass.
Saying we have no competition, downplaying competition, not understanding all competition, not knowing actual market size, etc is a major turn off.
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12. MARKET IS NOT A VENTURE SCALE
— Alex Iskold | 2048.vc (@alexiskold) September 2, 2022
This is always a debate with many VCs thinking that markets can expand. Great founders can expand them. I don't believe this to be true for all markets.
Regardless, if VC thinks that the opportunity is too small for their fund size - pass.
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13. NOT THE RIGHT TEAM
— Alex Iskold | 2048.vc (@alexiskold) September 2, 2022
VC may like the market but may not feel like the team is strong enough to win it.
Most likely it would be lack of experience/FMF or CEO's inability to demonstrate big vision, and clear ability to inspire and build a team.
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14. MARKET IS TOO CROWDED
— Alex Iskold | 2048.vc (@alexiskold) September 2, 2022
If the market is very competitive, and the founders can't articulate a clear wedge, unique insight and why they win, then VC will not see the opportunity and will pass.
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15. VC DOESN'T CARE FOR ABOUT THIS PROBLEM
— Alex Iskold | 2048.vc (@alexiskold) September 2, 2022
Remember VCs have interests -- they simply may not be interested in the problem space you are building.
Not all VCs care about all the spaces.
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16. VC IS AT CAPACITY
— Alex Iskold | 2048.vc (@alexiskold) September 2, 2022
This is the weirdest one, but often true. Senior partners at firms maybe on too many boards to make a new investment.
They will pass simply because they just don't have time / can't take on any more investments.
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17. VC IS TOO JUNIOR TO GET THE DEAL DONE
— Alex Iskold | 2048.vc (@alexiskold) September 2, 2022
You may have convinced a VC but they can't convince their partnership.
This is painful.
Many firms have Investment Committee (IC) that votes on deals and if they vote no, you don't get the check.
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18. VC HAS LITTLE OR NO MONEY LEFT
— Alex Iskold | 2048.vc (@alexiskold) September 2, 2022
Towards the end of the fund, VCs have less checks to write and higher bar for each check.
Some funds run out of money but still keep taking meetings with founders.
This is really painful, be sure to ask if VCs are writing checks!
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19. VC BACKED A COMPETITOR
— Alex Iskold | 2048.vc (@alexiskold) September 2, 2022
Do your homework! Do non't pitch VC who backed a competitor, they will not invest in you.
(Unless this is YC or another accelerator, in which case they may!)
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If you enjoyed this thread, check out over 80 posts for startups on my blog https://t.co/WUM7KP1s7f and follow @2048vc for more startup content.
— Alex Iskold | 2048.vc (@alexiskold) September 2, 2022
Happy long weekend and ✌️
Pitched through your website. Ask: 100K. https://t.co/QtzI6XSvKr
— Paramendra Kumar Bhagat (@paramendra) September 2, 2022
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