Source | FastCompany : By PATRICK HENRY
So you made a plan to raise a round of financing and were greeted with a resounding yawn. You’re not alone. Raising money for a startup is really hard and usually takes much longer than you think, with many founders discovering they need to meet with far more investors than they’d thought.
Here’s the thing: Venture capitalists are trained to say no. There are a limited number of investments they can make, and they’re primed to look for reasons to withhold funding—especially lately, as VCs show more caution than they did just a few years ago.
These challenges aren’t insurmountable, though, and getting rejected for funding may even be a useful experience for some startups. Here’s a seven-step guide, based on my experience as a startup advisor, to using that setback as fuel to propel you forward.
Venture capitalists and most angel investors are polite, at least to your face. They don’t want to earn a reputation as someone who isn’t supportive and easy to work with. So the very first thing you can do after getting turned down is to ask why. The reasons that they give for passing on an investment may be valid, and possibly even something that hadn’t occurred to you initially.
But don’t just ask the VCs you’ve pitched to. It can also be useful to get back-channel feedback from the rest of your network. Describe how you pitched your startup and why investors ultimately told you they chose to pass. This may help you discover that you’ve got to rethink your business model, your target list of investors, or your marketing approach toward them.
Investors are obviously looking for companies that have spectacular growth potential. In other words, the bar is high. As an entrepreneur and startup CEO, you already know that you need to have a good understanding of the potential size and growth of your target market and understand your customers’ needs and pain points. Likewise, you know that you need to have a realistic grasp of the current and potential competitive landscape.
A rejection is a useful red flag that your understanding on these fronts may not be as ironclad as you’d thought. It may turn out that your business model is as sound as you’ve always believed, but getting turned down for funding is a sure sign that it’s worth taking a second look.