Four Possible Pitch Outcomes and How to Respond
After talking with investors, four outcomes are possible: You engage in due diligence; you hear “No, thank you”; you hear nothing; or you hear “Come back after you hit certain milestones.”
Possibility 1 — You enter into due diligence with a (venture capital) VC firm
If your efforts lead to due diligence, congratulations! What you do next depends on the type of agreement:
You have to sign a no-shop agreement. In this case, you agree to stop talking to any other investors.
You don’t have to sign a no-shop agreement. In this case, you should keep talking to investors. If the first investor passes on the deal, you’ll be happy you were talking to the other investors. Alternatively — and depending on your deal — your investors may want to work together to fund your round.
Possibility 2 — You hear the words “No, thank you”
Good news! You know not to bother with that investor or investor group anymore. Getting a clear “no” is rare. If you get one, you can consider it a successful answer. You can focus your time elsewhere. Move on.
Possibility 3 — You hear nothing at all
Unfortunately, not hearing anything at all is the most common of the outcomes. Radio silence is not only annoying; it’s hard to work with. You can’t make decisions when you know nothing about whether investors are interested or not. And if you don’t know that, how can you know how to best approach them?
The answer is to analyze your interaction with investors. Doing so can help you ask the right questions so that you can get responses that help you figure out your next move in fundraising.
You may hear nothing for a variety of reasons, some of which relate to things on the investors’ end (they’ve seen too many deals at once; they don’t currently have the due diligence bandwidth; their capital isn’t liquid; they’re waiting for another deal to close; and so on).
In other words, there are a myriad of reasons that investors may not invest right away in your company that have nothing to do with the quality of your deal.
Possibility 4 — You hear “Come back after you hit certain milestones”
In this case, the VC wants to see progress before she goes any further, and she typically specifies, directly or indirectly, the kinds of progress she’s looking for. Your task at this point is to go back to building your company. Later, after you hit a few more milestones, you can start the fundraising campaign again.
Don’t expect this message to be totally clear. Occasionally, a VC will give you a clear directive to accomplish one or two things and then come back and talk to them. Generally, the VC’s wishes aren’t going to be so concrete. She’s not being difficult on purpose.
There are probably a number of different milestones that you could accomplish, and then your company will be more attractive as an investment. Any one or two could tip the scales in your favor.
Sometimes investors aren’t interested yet. But they could be if certain things were to happen on your end:
Investors would like to see more traction with customers.
Investors would like to see a specific person or type of person added to your team or would rather your team be led by a more experienced CEO.
Investors think that your valuation is unreasonable.
Investors are concerned about regulatory hurdles and are waiting to see whether your product passes FDA, EPA, or other regulation.
Investors are concerned that you are too broadly seeking customers instead of focusing on one market vertical.