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Have you ever sent a cold pitch email to an investor only to wait in silence for a response? You are not alone, but the reason may not be as simple as the investor not being interested in your company or even your company is not fundable (although these are common scenarios).
In conversations with successful founders and seasoned investors, a common theme in the first quarter of 2024 has been the lack of investor response, even from warm leads expecting outreach.
While alternative markets like venture capital and private equity have shown better returns than public markets, impacts from a pandemic, runaway valuations, and gold rushes to emerging tech like AI have the market in uncharted territory.
With more startups shuttering than ever and some experts even stating that founders need to raise more capital with each round for a longer runway, it is essential to understand investors’ perspectives on why your pitch may not be getting a response.
Non-Matching Thesis
One of the most common reasons for a lack of investor response is that the opportunity simply does not fit an investment thesis. An investment thesis is a strict set of rules an investor needs to follow, agreed upon by the Limited Partners (“LPs”) who place capital into an investment vehicle for Managing Partners (“MPs”) to deploy. Common areas of an investment thesis include what industries to invest in, what stages (e.g., Pre-Seed, Seed, Series A, etc.) to participate in, which types of deals to invest in (e.g., equity vs. debt), whether investors will lead a round or require other investor commitments, and many more factors. It is nearly impossible for an investor to deploy capital outside their thesis, so startup founders must understand what each investor seeks instead of assuming investors are open to any opportunity.
Advice: One of the most important questions startup founders can ask investors before they start pitching is, “Can you tell me about your investment thesis?” This question places the emphasis on the investor first, not the startup, allowing you to first qualify your “opportunity” before presenting your “ask.”
Contact Information Accessibility
Pre-pandemic, less than 100 pitches were submitted monthly via my fund’s online form. That number has now reached nearly 2,000 per month. In a DocSend report, the average time investors spent reviewing a Seed round deck was just over three minutes. For a firm with 2,000 pitches, that equates to 100 hours a month, or two and half weeks of 40-hour/week full-time reviewing, which does not even include time for responses, notes, or secondary reviews by leadership. Platforms like Seamless.ai and Apollo scrape the internet to find nearly anyone’s contact information, while companies like Hunter.io show “naming conventions” of emails of contacts identifying as investors or members of an investment firm. LinkedIn has even become a hub for influencers selling investor contact lists, some of which cost over $10,000. This increased exposure of contact information leads can be a positive for startup founders, but it can also increase the number of emails sent to investors, which can slow response times.
Advice: For startups paying for leads, it is important to remember that these lists can be shared multiple times and that each address should be verified. Before the pitch email, you may also want to introduce yourself on a public platform like LinkedIn or Twitter, with a goal of having the investor respond and request your pitch.
Lack of Anonymity
Investors are incredibly cautious when showing interest in a deal, as the review process can be extensive, requiring approval from investment committees, which may only meet weekly, monthly, or quarterly. Investors will often be silent until they have a definitive response, which can cause delays in communication. This lack of response can spark an eager founder who needs quick capital to request updates, which can frustrate investors, creating a lack of interest in the founder and an overall vicious cycle.
Investors often want a layer of anonymity, allowing them to freely review submitted data room material like pitch decks, financial projections, and more without feeling tracked. Some investors have even privately reported being turned off when a deck is submitted through platforms that require an upfront email address (although no investors were willing to go on the record after giving this response).
Advice: For startups who have submitted their pitch, do not repeatedly ask an investor for updates once you have submitted. The preferred follow-up method is for the startup to provide positive growth updates (e.g., new customers, revenue, milestones, etc.) rather than asking the investor for updates.
Lack of Liquid Capital
Contrary to popular belief, not every investor is continuously deploying capital. Most investors with funds need to raise capital from LPs, which can take months or even years to secure. Investors may begin deploying capital before closing their round, which comes from “capital calls,” where LPs place a percentage of their investment into the fund for deployment. Investors who do not respond to startups may be between capital calls, raising a new fund, or may have hit their maximum allocation for new investments, focusing their efforts on follow-on investments to their existing portfolio. During volatile times like the pandemic, some investors adjusted their thesis to divert capital allocated for new investment to triage their existing portfolio, doubling down on their existing bets.
Advice: Coupled with the question about an investor’s thesis, another consideration for startups meeting investors should be, “Are you currently deploying capital?” as a qualifier, avoiding those who are not currently deploying.
Unfundable Companies
Sometimes, the truth hurts, but it needs to be stated that not every startup is fundable. Investors seek high-growth investment opportunities which will produce massive returns: multiples of 10x, 100x, 1000x, etc. The possibility of a unicorn (where the company reaches $1 billion in valuation) is extremely rare, and some investors are only focusing on markets where the Total Addressable Market (“TAM”) is at least multiple billions in opportunity. With tech-based companies able to scale through automation and generative AI achieving market adoption so quickly, service-based agencies or companies that require humans to perform individual actions (outside of high-growth industries like healthcare) can be less attractive to investors. Factors like founder experience, established networks, and proof of market validation are common areas of interest, but non-tech outliers often receive funding (e.g., WeWork).
Advice: Ask unbiased opinions from investors or VC experts if your startup is fundable. This structure changes the dynamic of the conversation, removing the emphasis on funding and placing it on the person’s expertise. Investors have also been shown to respond positively to a founder with a sense of humility.
The process of deploying capital is highly complex. Investors have strict guidelines to follow and are trying to balance finding the best deals with the lowest risk. LPs expect solid returns on funds, which increasingly puts pressure on investors managing funds, and the stress can trickle down to startups who are desperately trying to find sources of capital. The startups that succeed at raising capital research and qualify their leads in advance cater their pitch to each investor and allow the investor to navigate the review process at their own pace without constantly asking for updates.
The industry of raising and deploying capital is ripe for disruption through technology, from increased automation to filtering, matching, and scoring investors and startups. Despite its very recent launch, Generative AI already provides startups with tools to make their pitches and data rooms more efficient. This disruption will require the industry at large to be open-minded and accepting of change, but most investors and startups will agree that this is long overdue.
Disclosure: Brian Penick is an Angel Investor, GP at LOUD Capital, and the founder of Scorecard.vc.
