I looked at 4000 deals I’ve said no to in the last 3 years. Here are the most common reasons I passed…

1) No revenue. This is by far the most common reason why I pass on a startup.

Cash is king. If a company can get people to plunk down their credit card, it means their product really is valuable.

I like to see $200-500k ARR when I invest. But unfortunately, most startups never make a dime in revenue.

2) Wrong Industry. The next most common reason I pass on a startup is that it’s in an area I don’t generally invest in.

Thus far, I’ve mostly stuck to software. I’m planning to branch out to a few biotech and defense deals, but there are many areas I don’t know about and don’t touch.

Think stuff like satellites, semiconductors and agtech. I don’t know a lot about those fields and they’re not the areas I’m most interested in. These may be great companies, but I leave them to other investors.

3) Revenue Growth Too Low. The 3rd biggest reason is that a company has revenue, but it’s not growing very fast.

If I look at my most successful investments today, they all had incredibly high growth when I invested. I look for at least 3x YoY growth in revenue.

4) Too Late Stage. While many companies are too early for me, others are already much too big.

Since I focus on early stage, I don’t write a check into something like SpaceX. In the last year or so, secondaries in major startups have become more and more frequent. There are some great opportunities here, but it’s just not where I focus.

5) Not a Delaware C Corp. When it comes to raising from US investors, there’s only one way to go: a Delaware C Corporation.

This entity lets you do important things a startup needs to do, like issue stock options. You’d be amazed how many companies get this wrong. Give yourself an advantage: incorporate properly from Day 1.

Wrap-Up

Here’s what you, as a founder, can learn from this…

Focus on investors that invest in companies like yours. Anything else is a waste of time.

Before you pitch an investor, make sure they invest at your stage. If you’re a biotech company, see if they’ve invested in other biotech companies. If you’re in Australia, find out if they invest in Australia.

Targeting your investors like this will take extra time at first. But you’ll save countless hours pitching people who are never going to write you a check.

With a carefully honed list of investors, you can raise fast and get back to building.

More on tech:

Up to $15 Million, Tax Free — QSBS Changes in the BBB

Where I’m Finding the Best Startups Now

My Biggest Losses as an Angel Investor

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