Why Founders Have No Clue How They Raised (Or Failed To)

Sometimes, it feels like magic.

In the beginning of my venture career, I knew of a firm that was involved in a highly competitive funding round that they ultimately failed to win. It was a clearly hot space and they felt like they had missed out on an opportunity to place their bet in it—and worst of all, they lost the deal to what they considered a rival firm.

Well, the very next company they saw in that space got a term sheet from the firm that missed out. They had constructed a very specific story about how that company’s features would win out over and above the deal that they missed.

The funny thing was that I saw that second company on a panel and the founder told a very elaborate story about how he was able to secure funding—how he had a very specific approach and how he tailored his pitch to specific things each VC was looking for, while at the same time making sure that they knew that he had a top tier team, because team was all-important.

He had no idea that the firm that backed him had missed out on the marquee deal to be had in this space or that it drove their interest in his company. For years, he went on to advise other founders about how to generate VC interest, which really could have amounted to, “Be a warm body with a pulse in a sector that firm got shut out of a deal in.”

The problem is even worse when it comes to turn downs, for two big reasons:

  1. VCs don’t like giving flat out “no” because entrepreneurs have a nasty habit of pivoting and eventually figuring things out. They hope that they’ll be able to stay close enough to a deal in order to grab a piece of the company when they turn it around. Saying no closes a door when there’s really no incentive to do so if you’re an investor—and especially if you’re not an investor that focuses on really early stage. When VCs are saying they’re going to wait—they’re passing. If they thought there was a 100% chance you’ll do what you say you are going to do, they’d invest now while the shares are cheap. By waiting, they’re betting against you—and it’s your job to figure out what it is specifically that they don’t believe you can do.

  2. Founders get “happy ears”. They’re terrible listeners when it comes to getting what seems like harsh feedback. I can’t tell you how many times I’ve told a founder, “I don’t think this is a great way to make money, so I’m going to pass,” and the founder responds with, “Sorry this isn’t a fit for your firm—do you know of any other investors where this might be closer to their thesis?” Wha?! Sorry buddy, but no, I don’t have any other VC friends whose thesis is trying to lose money as fast as possible. So, founders will go out and about in the ecosystem and repeat the idea that VCs don’t want to take risk or don’t make early bets, etc.—but have you ever heard a founder say, “I failed to raise because I was unable to convince investors that my business could make a lot of money—either because it’s a bad plan or I was unconvincing”? No. Never happens—even though that’s the case in most situations. The ecosystem is full of bad advice from founders that couldn’t raise.

There are so many factors that go into a raise—and here are just a few that no one really talks about or seems to notice:

  1. The investor just happens to be looking specifically for the kind of thing you’re pitching. This just happened to be recently when I started noticing that I was discounting the overall size of the creator tools market—so I decided to be a little bit more open to a specific Canva/Figma/etc style version of it, and then I got a pitch from a team I really liked. This is why following and more importantly interacting with investors on social can be helpful.

  2. The founder telling the biggest future version of a story wins. I see this all the time—two founders pitching the same thing, one gets funded, one doesn’t. The bigger the goals, the more ambitious you’re likely to be seen as to investors, making you seem like a risky bet worth taking.

  3. You’re kind of a jerk. Something you did really irked the people you pitched. Maybe you were rude to the office manager. Maybe you said it was ok that your business model included stealing tips from your delivery personnel. Whatever it was, they just don’t want to work with you and the emotional drama of actually telling you to your face about it just isn’t worth it.

  4. You pitched a jerk. Not all investors are professional. Some are just random rich people who think they can get away with bullshit because they have money—and they haven’t been proven wrong yet, and maybe never will. Some are just pretending to be rich people or in the company of rich people—but either way, they’re really not the cream of the crop. They don’t really know what they’re doing, but they will still spout off a lot of bad advice. It’s sometimes hard to tell who is actually good. I could tell you that I’m from some rich family office in the shipping industry and how in the world would you even know if I was lying? You wouldn’t. Before you give up on the whole industry, try to get the time of people who have been doing it a long time, who are public about what they’re investing in, and who have had positive interactions with people you know.

Life’s too short to suffer rich assholes.