How to sell your bright idea


Finding Capital


Only one in a hundred startups will succeed, and the venture capitalist has to be able to pick the right one

In Silicon Valley by Jek Kian

Jin 7 March 2000 - Over the past year, I've received e-mail from readers asking for help and advice on starting their own business, or tips on how to raise capital effectively.

Many want to know what venture capitalists (VCs) really look out for. All I can say is that there are many books written on business plans and capital formation out there which do a much better job, and to get at them there is always Amazon.com (disclaimer: I own AMZN stock. Now it can be told).

But not every deal that a VC looks at gets funded. The success rate is depressing, as I've often pointed out, and is about one in 100.

This has held up pretty well even in the current flood of dot.com IPOs. Since more people are doing dot.coms, so the starting pool has grown to keep pace.

If this is so, then VCs probably spend more time rejecting companies than accepting them -- and I've always wondered why nobody ever talks about the rejects, or the reasons why companies don't make it.

If you've tried pitching to a VC and were rejected, don't take it personally. The statistics are not in your favour, even if you sincerely believed that you were that one in 100, life is not always fair.

VCs work with the odds, they have been there, done that and seen successful companies exit, so they have a good sense of what works and what doesn't. So, here are some reasons why professional VCs reject deals:

We think you need a more rounded management team.


The VC's first rule is always People, People, People. Perhaps your team of founders has too many techies, and not enough people with relevant domain knowledge. Most of the time, this is shorthand or a polite way of saying that you just don't have the experience to build a successful business. Of course, there have been exceptions. The founders of Yahoo! and Excite were inexperienced but smart Stanford graduates for instance.

But the first wave of dot.coms has already come and gone. The second wave has already IPOed. New businesses now need to start with top calibre, experienced people. It is not a game for newbies anymore.

We don't think there is a market for your concept.


This is simply what it says. The VC probably doesn't think the market potential is large enough. Even if you have a great team and product, if the overall market size is well below a billion dollars or does not demonstrate strong, sustained growth, then the VC is not likely to put his money there.

On the other hand, if the market is big, he may be saying that your concept is simply not feasible.

We have questions over the execution.


Even if the concept and team are good, the true test of any venture is in the execution.

The VC could be alluding to difficulties in implementing your plan because of various issues. Perhaps you need a $5 million marketing budget and your team is just not seasoned enough to spend this money effectively. Or the incumbents in your space are too difficult to dislodge.

However, if a VC gives this reason, he may have accepted tacitly that your idea and team are good. You may want to press him further and ask him what does it take to execute the plan successfully.

This is too big/small/late/early for us.


VC funds usually have some conditions such as typical investment quantum and different stage of investment, depending on the size of the fund or its risk profile.

So if you are an early stage company asking for, say, $1 million in seed capital, make sure you do your homework and the VC firm is able to invest in your type of company.

There's too much competition in your space.


Did you check to see if your idea has already been taken by somebody else? VCs see a lot of companies and if they believe there is a stronger competitor they will back off. Especially if the competitor has had a head start, or worse, is already public.

Most VCs will want to know how you can establish a strategy to attack or outflank the competition. If you cannot satisfy them, they will usually pass.

Love to do the deal, but no bandwidth.


Most VC partners can manage about 10 investments each and they look for those that have the best return potential.

So, this is a way of telling you that you have a great business opportunity and they like the deal, but they have other startups that are better investments.

We invest in category killers only.


Top VCs invest in companies that can dominate a market niche. They are not interested in wannabes or also-rans. Possibly your space is poorly defined.

Perhaps the category does not exist or is too small to be worth their while.But sometimes it is a blunt way of telling you that you don't have what it takes to be that killer.

Not our space, we don't understand it too well, and cannot value-add.


This is an honest VC speaking and you should respect that. Some specialise in investing in certain types of companies, software for example, or B2B deals. Make sure you only approach those VCs who have invested in companies like yours.

Good VCs are always honest and tell it like it is. They will almost always tell you why they cannot invest. The bad VCs are those who do not return your calls or cannot tell you why they had to decline.

Then again, VCs have so many deals that they cannot attend to every one. So you have to be persistent to get an answer. If it is negative, then try to find out why.

Failure is part of the game, and while a true entrepreneur will always keep coming back, it's often useful to know why you failed. Understanding why a investor won't invest is to take home a lesson for the next time.

Article Courtesy of The Straits Times Interactive