Why Do Investors Take So Long to Commit? - Craftsman Founder

Why Do Investors Take So Long to Commit?

When I started out as a programmer and first tried to raise venture capital, it was a frustrating process (to say the least). There were sleepless nights, tons of travel, and the worst part was I couldn’t tell how I was doing while I was pitching. For months it seemed like nobody was interested. I couldn’t get anyone to commit.

The thoughts going through my head included:

  • Why do investors take so long to commit?
  • Isn’t this supposed to be risk capital, why isn’t anyone willing to take a risk?
  • Why won’t VCs just tell me the truth?

However, after raising $10M from angels and VCs and having spent more time with investors and people who have gone through this process a number of times, I began to have glimpses into the subtleties of why investors act the way they do.

The Investor Mindset

One day, a close friend who had done investing for decades confided in me that he would:

  • Rather say NO to the next big successful startup

  • Than say YES to a startup that fails

Read that back carefully. He did not mean that he only invested in startups that succeeded, nor that none of his investments failed. Many of his investments did in fact end up failing, and he was perfectly ok with that. It is a natural part of the business.

What he meant is that he would rather invest in a company he believed would be as close to a sure thing as you can get than to invest in a promising company that could be the next Google or Facebook, but he isn’t quite sure about.

Why Act This Way?

As first time entrepreneurs, it initially might seems like since all startups are risky, investors should pick the ones with the biggest upside potential. Even if it means investing in a first time entrepreneur with no track record. If 9 in 10 startups fail anyhow, they should just go for the home-runs, right?

Turns out that the 9 in 10 number is not exactly correct… the real number is actually far greater. It is actually more than 99 out of 100 startups that fail; it is only 9 out of 10 venture backed startups that fail.

If investors only invested based on how big the potential upside of any given idea could be, they would end up investing in significantly more failed companies. Since Venture Capitalists are investing other people’s money, they have a fiduciary duty to do so carefully. They must mitigate risk by managing their downside.

Conclusion: Investors look for any reasons NOT to invest.

How Common Is This?

One of the top-tier VCs, Bessemer Venture Partners has passed on many huge name brands including:

  • Pre-IPO stock in Apple
  • Google
  • Intel
  • Paypal
  • eBay
  • Intuit
  • FedEx (passed on this one 7 times!!!)

In one article in Business Insider:

  • Ron Conway passed on Salesforce.com
  • Fred Wilson passed on Airbnb
  • Chris Dixon passed on Dropbox
  • David Pakman passed out on Twitter
  • Mark Pincus passed on Zynga
  • Charlie O’Donnell passed on Foursquare
  • Ben Lerer passed on Foursquare and Uber

The reasons given include:

  • Not trusting their gut
  • Thinking the founders weren’t right
  • Not understanding the market opportunity
  • Thinking the valuation was too high


Investors are constantly pattern matching and looking for reasons NOT to invest; they are not looking for reasons to say yes. The system is built this way specifically to mitigate downside potential and investor risk. Investors must act this way or they will get sued by their limited partners.

Knowing this, study what investors look out for. Look out for them in your pitch deck. When you review your deck, instead of impressing yourself with your own accolades, pretend you are an investor. Ask yourself difficult questions:

  • Would you invest in your own startup?
  • If you were given a million dollars to invest from a rich friend, would your startup be as safe a bet as any?
  • Are there ways you could protect your downside and reduce risk?
  • Could you reduce your risk by bringing on a co-founder with more experience in your space?
  • Would it be better to figure out your marketing strategy before you raised money?

Don’t give investors an easy reason to say no, because they will take it every time. To commit is harder than it looks.

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Lucas Carlson

About the Author

Lucas Carlson

Lucas Carlson is a hands-on consultant, author and entrepreneur. He helps founders discover opportunities for growth, both for their companies and for themselves. He was the CEO and founder of AppFog, a popular startup acquired in 2013 after signing up over 100,000 developers and raising nearly $10M in venture funding from top angels and VCs.

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