Fundraising Guide P.5 | Looking Ahead in 2023

Part 1, 2, 3, 4

By now, you’ve learned and created

• Where to find investors and a list of target funds to pitch
• VC personas and how to design your dream cap table
• A well-designed deck and story communicating your differentiation
• Investor communications before, during and after raising capital 

In P.5 of our fundraising guide, you’ll learn

• Common reasons why investors say no
• What investors are looking for in founders and products in 2023

Common Reasons Why Investors Say No

1. Lack of traction/product market fit; It’s too early for the brand to be raising capital. They want to see more customer data to see if subscribers continue to purchase after the first few months. 
2. The valuation is too high and doesn’t align with the company’s potential and progress.
3. They lack confidence in the founders; the team is inexperienced without potential to be coached.
4. The products aren’t unique and don’t stand out online or on the retail shelf alongside competition.
5. Both parties didn’t align on the vision and priorities for the brand in the next 1-5 years.
6. The fund and founders didn’t have business chemistry throughout the pitch process, with no chance of collaborating now or in the future. 
7. There is a conflicting brand in their portfolio, either a competitor, or a brand similar to yours that might launch a competing product. This is why we encouraged you to double check portfolios before pitching.
8. The price of the products is too high and lacks potential for mass appeal, especially in retail. This is even more apparent when the COGs are very high, versus charging a premium as a branding play.
9. They don’t understand the product or customer. Not all VCs will be your target customer, but the best investors are curious and open-minded to invest in products outside of their own shopping habits. This is why it’s so important for funds to build diverse teams on the sourcing and diligence sides of the table.
10. It’s not you, it’s them. Sometimes a fund *really* likes a brand, but has to say no for reasons out of their control, like the product being outside of the comfort zone of what they or their LPs want to invest in. Hopefully a fund is transparent about this conflict before a first pitch meeting to not waste your time. 

Looking Ahead: Insights on What Investors Are Looking for in 2023

• Strong founders and teams. Funds want to partner with resilient, resourceful and responsible founders with strong leadership and intuition skills. Founders with the Three R’s can calmly solve challenges related to inconsistent supply chains, increasing revenue, reducing COGs and burn rate, and misc surprises. You should be able to lean on your VCs for advice, but not for the majority of your challenges. Your co-founders and seasoned executive team should have most of the answers you need in 2023. Refer to Part 2 of our guide to learn how to communicate your Three R’s in a pitch deck.

• Products with (super)market fit with ideally one successful national retail partnership, but your brand doesn’t have to be selling nationally with them yet. Maybe you’re selling regionally at a national chain. If you’re new to retail and looking to ramp up distribution before raising in 2023, check out Indie CPG’s Cart Camp recap, where Ampla’s Kunal Kohli spoke, as well as their Supermarket Map guide.  

• Brands with mass appeal. The larger the addressable market for your product, the more likely you are to get funded, as investors are looking for a return on their investment via an acquisition, buyout, or IPO. The brands that typically get acquired are ones that have captured the hearts of millions of consumers. You can increase your TAM with low-education products featuring flavors and aesthetics that resonate with consumers of all ages. They should instantly know what it is and how to eat or use it.

• High potential for the brand to stay in business through a recession. Let’s take exits off the table for a second, as they are rare. In the meantime, investors want to back brands in 2023 that can stay in business the next few years to ultimately get to an exit. The health and growth of their portfolios today dictate their ability to raise new funds from Limited Partners tomorrow to back new brands. As well as to participate in follow on rounds for existing portfolio companies and to secure more equity for their LPs.