10 Steps to Handle Business Rejection by Investors

How to Handle Business Rejection by Investors in 10 Steps

Did investors reject your business? That’s normal. In an average year in the U.S., over six million businesses are started. Less than 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.

Whether it was angel investment, venture capital, small business loans, or any other outside investment, experiencing rejection is a part of entrepreneurship. You’re the rule, not the exception.

So, what’s the key to 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 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. You can follow this 10-step framework to uncover why you were rejected and adjust your pitch.

1. Ask why your business was rejected

Start with good feedback. Most investors 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. Stress how much you value the feedback and make it clear you are not going to continue to argue. Treat it as a normal, important, and worthwhile part of the process.

Make sure the questions you ask are clear and specific. While the exact information you seek will 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 improvement?

– Were there parts of your presentation that lacked context or supporting information?

– Are there any recommended next steps?

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If you don’t ask, you may never know why.

2. Evaluate the reasons for rejection

After receiving feedback and understanding why your business idea was rejected, don’t take it at face value. Take a step back and give it a good analytical look. Sometimes it’s not the whole truth or the root of the rejection.

For example, there was 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 with 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, an angel investment group rejected a founder who, during the presentation, blamed every setback on somebody else. Instead of telling him the truth, they gave him useless clichés, like “you’re not there yet” and “too much noise in that market.”

There were also 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 stopped 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

– Lack of a large market or actual product-market fit

– Your business isn’t primed for growth

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 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.

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.

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Whatever the case, consider the possibility that your idea just won’t work. You may need to make a pivot to attract investors.

Revise your plan

Take what you learned from investor feedback and review your business plan. Is there anything 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.

Research investors

If you haven’t already, do more homework on which investors to approach. Investors generally have preferences related to where they invest, including the types of industries, investment amounts, and stages. To improve your chances, narrow your search down to investors who are more likely to be interested.

Find alternative funding sources

If you’re struggling to connect with investors, consider alternative funding sources. Traditional loans, business credit cards, grants, fintech lenders, crowdfunding, and pitch competitions are just a few 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.

Don’t blame investors

Avoid blaming the investors. It will reflect poorly on you and your business, and potentially sink your chances for other investments.

Remember that you are still trying to convince people to invest in your idea. They will have preferences, preconceived notions, and biases that you may be unaware of.

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Do your best to prepare, take it in stride, and work through the previous steps in this article to do better next time.

Don’t blame the process

Avoid blaming the process if things don’t go as planned. Take notes on what can be improved next time and focus on what can be done in the future.

Know when to stop pursuing investment

If you’re making traction and building your business without funding, you likely don’t need it right now. Invest your energy in your business instead of wasting time pursuing investors.

Realize that funding isn’t everything

Most businesses start without investors. If you have a product-market fit, offer a value that people want, and fill a need, then bootstrapping might work and you can build that company. If not, recognize the problems early and move on.

Embrace rejection

Rejection is embedded in entrepreneurship. You’ll be rejected by customers, vendors, employees, and investors. 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.

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