How to Handle Business Rejection by Investors in 10 Steps
Did investors reject your business? That’s completely normal. In an average year in the U.S., more than six million businesses are started. Close to 30,000 of them will land angel investments, and fewer than 5,000 get venture capital.
In more than a decade of angel investment, and having participated in hundreds of pitches—I’ve never seen one business succeed without multiple rejections along the way.
Whether it was angel investment, venture capital, small business loans, or any other outside investment. The reality is that experiencing rejection is a part of entrepreneurship. You’re the rule, not the exception.
So, you may be wondering, what’s the key to finally convincing an investor? It all comes down to how you handle rejection in business.
10 things to do if your investment is rejected
Dealing with rejection in business is all about learning and adapting. Failing to qualify for investment isn’t a failure, it’s a chance to improve your business and abilities as an entrepreneur. It teaches you how to deal with investors, what areas of your business need to be strengthened, and how to improve your pitch for the next meeting.
It can be difficult to know where to start after an investor rejects your business proposal. Luckily, you can follow this 10-step framework to uncover why you were rejected and adjust your pitch.
1. Ask why your business was rejected
I can’t overestimate the importance of starting with good feedback. Most of the hundred or so investors I know and work with try to give good feedback with rejection. But it might not always be the exact answers you need to improve your business.
Ask quickly, and politely, why your business was rejected. Be sure to stress how much you value the feedback. Make it clear you are not going to continue to argue. Treat it as a normal part of the process, that is important and worthwhile.
Make sure that any questions you ask are clear and specific. While the exact information you seek will fully depend on your business and pitch performance it’s worth asking:
- •What businesses were accepted when yours wasn’t?
- •What areas of your pitch or plan need to be improved?
- •Were there parts of your presentation that lacked enough context or supporting information?
- •Are there any next steps that the investors recommend you take?
If you don’t ask, you may never know why.
2. Evaluate the reasons for rejection
Even after you receive feedback and have an understanding of why your business idea was rejected, don’t take it at face value. It’s important that you take a step back and give it a good analytical look. Sometimes it’s not the whole truth or the root of why you were rejected.
For example, I know of a startup whose investors said they rejected them due to a lack of five-year monthly financial projections. But the same group had invested in multiple startups that had only one year of monthly and two additional years of annual projections. Whatever the real problem was, those investors didn’t share it.
In another case, I saw an angel investment group reject a founder who, during his presentation, blamed every setback on somebody other than himself. They didn’t tell him the truth, which was that they didn’t want to invest in somebody who always blames others. Instead, they gave him useless clichés, like “you’re not there yet” and “too much noise in that market.”
I’ve also seen several cases of founders who didn’t get good feedback because they wouldn’t take feedback. They argued every point the investors tried to make. So the investors stop trying.
Remember that the investment process is a filter. It pushes some small business owners to the top and others out of the way. This filtering process is a good thing for many entrepreneurs who have the sense to listen to it.
Common business investment rejection reasons
If the investment community doesn’t invest in a plan, there may well be some very good reasons why not. Here are a few common reasons:
Lack of experience
You don’t have to have years of successful entrepreneurial experience in your background. You do need a certain level of expertise, accreditation, and/or work history that demonstrates your ability to start and grow a business. And generally, a team of two or three people, who have backgrounds that indicate they can do what they have to do, is better than a single founder.
Lack of a large market or actual product-market fit
Investors want to have a real shot at growing your valuation when they write you a check. They want your business to be able to scale up. This will be difficult if your business model doesn’t easily scale. It’s even more difficult if there’s no supporting customer interest.
Can you increase sales tenfold without having to increase your headcount proportionately? If the answer is no, you may need to revisit your business model.
Your business isn’t primed for growth
One of the lesser-understood facts of outside investors is they don’t make money with a healthy growing company that is cash-flow independent and doesn’t want to bring in more money to grow faster. They want a business that’s already moving, not just treading water waiting for investment.
That’s what experts mean when they say get traction. It might mean launching your site to gain early subscribers, developing a prototype and testing it professionally, or launching an app early in the app store to get pre-downloads. Whatever your choice, just focus on getting users, distributors, or a few big early clients. Anything that demonstrates to angel investors that you are viable.
3. Consider your business idea
Don’t hinge the success of your business on funding. You can’t ignore the possibility that you may never get outside investment and may have to proceed without it.
That doesn’t necessarily mean you have a bad business. Lots of good businesses are not attractive investments for outsiders. The best of them are the ones that can grow and prosper as owner-operated businesses without requiring capital input.
Those businesses are great for their founders, just not a good investment for outsiders. You may have one of those businesses.
On the other hand, you may have a bad business idea. Your product or service may not solve the right problem. Barriers to entry or the size of the market may not be sustainable. Your business finances may show a lack of stability and not enough traction to grow long-term.
Whatever the case, consider the possibility that your idea just won’t work. You may need to make a pivot to attract any investors.
4. Revise your plan
Take what you learned from any investor feedback and review your business plan. Is there anything that you need to focus on revising? Any specific points of your plan, business, or financials that are holding you back?
It might be adding the right people to your team, refocusing your market, beefing up intellectual property protection, validating your business with early sales, or something else. You might also be looking for different investors, a different forum, or a different investment amount.
Whatever the case, take the time to revisit and update your plan. It needs to reflect the best version of your business and it might not be there just yet.
5. Research investors
If you didn’t already, do more homework on which investors to approach. Investors generally have preferences related to where they invest. This includes the types of industries, what amounts, and at what stage. To improve your chances, narrow your search down to investors who are more likely to be interested.
6. Find alternative funding sources
If you’re struggling to connect with investors, then you may need to consider alternative funding sources. Traditional loans, business credit cards, grants, fintech lenders, crowdfunding, and pitch competitions are just a few of your potential options. To identify the right type of funding for your business, consider how you intend to use it and how much you’re looking for.
And if funding of any kind isn’t in the cards, you shouldn’t discount bootstrapping your business. Connect with friends and family, take preorders, or sell assets to get your business up and running. Going this route could even make your business more attractive to investors later on.
Further Reading: 10 reasons not to get investor funding
7. Don’t blame investors
Too many people jump to blame the investors. They didn’t get the idea. They weren’t listening to the supporting research. One key person had it out for you and sabotaged the deal. They were biased because of one factor or another.
Even if any of this is true, don’t talk like that. It will reflect poorly on you and your business, and potentially sink your chances for other investments.
More than likely, none of this is the case. However, you need to keep in mind that you are still trying to convince people to invest in your idea. They will have preferences, will have preconceived notions, and may have some biases that you’re unaware of.
Do your best to prepare, take it in stride, and work through the previous steps in this article to do better next time.
8. Don’t blame the process
Many people blame the process if they don’t blame the investors.
If only they’d been introduced sooner. If they had just used a different forum, or format. They should have taken the first appointment, or the last one. The pitch deck should have been better or they could have done a better job keeping the summary short.
What happened did happen, and you can’t change it. Sure, there may have been some less than ideal circumstances, or slip-ups during the pitch. But that’s going to happen throughout the life of your business and you need to roll with it.
The best thing you can do is take notes of what to improve next time. There’s no use getting caught up in the process or what went wrong. Just what can be done next time.
9. Know when to stop pursuing investment
Starting and managing an ongoing business is a long and winding road. It’s not one that ends with rejection from investors.
Don’t get caught up in needing to land funding. If you’re making traction and building your business without funding, you likely don’t need it right now. So, instead of wasting time pursuing investors, invest that energy in your business instead.
10. Realize that funding isn’t everything
Please remember that most businesses start without investors. If you really do have a product-market fit, you really are offering a value that people want, and filling a need, then bootstrapping might work and you can build that company. And if you don’t, it’s better to recognize the problems early and move on.
Embrace rejection
Rejection is embedded in entrepreneurship. You’ll be rejected by customers, vendors, employees, and investors. The important thing is that you take it in stride and use it to grow as a business owner. Remember, there are plenty of funding options out there and the investors that rejected you may not be the right ones.
Preparing to pursue funding? Check out our funding guide for step-by-step guidance to improve your chances of landing investment. And if you’re struggling with business loans, check out our recent writeup on how to handle business loan rejection.
Tim Berry
Tim Berry is the founder of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. Tim is the originator of Lean Business Planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning. His full biography is available on his blog.
