What Happens If I Don't Make This Investment?

Sometimes there's nothing wrong with your company or pitch, the other person just doesn't feel like passing will be a decision they regret.

I’ve spent a lot of time this year with founders who are at various stages of raising money. In retrospect, 2023 was a tough time to raise money, whether you were a VC pitching LPs or a founder pitching VCs. Things feel better this year, but it's not great for most people raising money unless you are a very buzzy AI-related startup company.

Many startup founders I’ve spoken with spent 2022 and 2023 working on their companies. They rolled out business models and started generating revenue. They reduced headcount and expenses and did more with less. They’ve learned much about their market and customers and are in a better position to serve them. Some have hit the metrics that are supposed to unlock a new round (I don’t believe that metrics unlock financing rounds in a deterministic way). Others have done that and answered other existential questions about the business that investors raised in the past. By all accounts, they have made good progress. With all of that progress, many of them are struggling to raise and get investors to pay attention.

Last week, I talked to a startup founder, and she asked me what was going on and how to make sense of the challenges she was having raising money. I told her many investors are consciously or unconsciously asking themselves the same question every time they meet a new company:

What happens if I don’t make this investment?

This explains a lot of what I’m seeing in the market. Sometimes, there’s nothing wrong with a company per se. The revenue traction is fine, the market size is interesting, and the founders are good. But the company just doesn’t feel special. If an investor were to pass on this company, it’s unlikely to be a pass they look back on with deep regret. In my experience, most investors are unwilling to express this sentiment to founders because it’s awkward to say to someone excited about the business they’re building. Instead of saying this, they find another reason to pass on the company and move on.