Why Venture Capitalists Just Say No
Of course, there are many compelling reasons to invest in a company. But there are just as many reasons NOT to invest in a company. Sometimes it's the investment that you don't make that is the smartest decision. Doriot kept a list of reasons for not investing. Typically, ARD invested in just 1% of the companies that came through its office. After all, venture capitalists are quite the experts at Just Saying No to entrepreneurs.
Among the reasons not to invest:
No proprietary products or abilities.
Product not yet developed -- feasibility can not be determined.
Low profit -- highly valued at too many times earnings.
Lack of growth potential -- competitive nature of business.
Unfavorable reaction from potential clients or distributors.
Recent association of principals with competing company--- may imply a poor ethical situation.
Georges Doriot is known as the pioneer of Venture Capital. In 1946, Doriot becmame president of the first public venture capital firm: Boston-based American Research and Development Corporation (ARD). ARD financed and nurtured more than 100 start-ups, over a 25 year span. Several of these start-ups became successful companies brought advances in technology and business. ARD's biggest hit was minicomputer maker Digital Equipment Corp. ARD made an initial investment of $70,000,and 15 years later,it was worth more than $400 million.
Among the reasons not to invest:
No proprietary products or abilities.
Product not yet developed -- feasibility can not be determined.
Low profit -- highly valued at too many times earnings.
Lack of growth potential -- competitive nature of business.
Unfavorable reaction from potential clients or distributors.
Recent association of principals with competing company--- may imply a poor ethical situation.
Georges Doriot is known as the pioneer of Venture Capital. In 1946, Doriot becmame president of the first public venture capital firm: Boston-based American Research and Development Corporation (ARD). ARD financed and nurtured more than 100 start-ups, over a 25 year span. Several of these start-ups became successful companies brought advances in technology and business. ARD's biggest hit was minicomputer maker Digital Equipment Corp. ARD made an initial investment of $70,000,and 15 years later,it was worth more than $400 million.
Replies to This Discussion
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Permalink Reply by Frank Mercer on -
Most VC firms are looking for viable, high growth, business models that are a good investment with a potential large return that is aligned with the investment funds criteria. Having said that you must also remember that VC‘s do say “no” more often than they say “yes”.
Reasons a VC may say no varies with many different factors such as:
• Your idea may be similar to a previous investment they made that failed
• Their investment diversity may be allow them to invest in sector
• Available capital may be too low at time you present
• You may be focusing too much on an exit strategy instead of how you will build your company
• Certain countries laws may scare VC money away
• Your location may not be close to the VC firm
• Other Key VC concerns:
o Addressable market size
o Likelihood of acquiring partners
o Competition threats
I have made several presentations to VC firms and have heard the above answers more than once.
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