Y Combinator’s Tom Blomfield says it’s usually because your team isn’t impressive enough
“When an investor passes on you, they will not tell you the real reason,” shared Tom Blomfield, a group partner at Y Combinator. “At seed stage, frankly, no one knows what’s going to happen. The future is so uncertain. All they’re judging is the perceived quality of the founder. When they pass, what they’re thinking in their head is that this person is not impressive enough. Not formidable. Not smart enough. Not hardworking enough. Whatever it is, ‘I am not convinced this person is a winner.’ And they will never say that to you, because you would get upset. And then you would never want to pitch them again.”
Drawing from his experience as the founder of Monzo Bank and as a partner at Y Combinator, Blomfield emphasized the importance of understanding the Power Law of Returns in venture capital. This concept highlights that a small number of highly successful investments generate the majority of returns for VC firms, underscoring the need for founders to convince investors of their startup’s potential for significant growth.
To achieve this, founders must demonstrate a compelling vision, a deep understanding of their market, and a clear path to rapid growth. They need to articulate how their startup can capture a significant portion of a large and growing market, with a scalable and profitable business model.
Blomfield stressed the significance of addressing the total addressable market (TAM) when presenting to investors. This metric represents the total revenue opportunity available to a startup, and it’s crucial for founders to provide realistic estimates backed by data and research.
In the fundraising process, creating leverage and competition among investors is key. Blomfield highlighted Y Combinator’s approach of generating leverage by bringing together top companies and investors, creating a high-pressure environment where investors compete to invest in startups.
Even outside of accelerator programs, founders can create leverage by running a tight fundraising process and strategically sequencing investor meetings to build momentum.
Blomfield also discussed the role of angel investors, who often invest based on their own convictions and can provide valuable introductions and support. He advised founders to speak with founders of unsuccessful investments within an investor’s portfolio to gain insights into their behavior during challenging times.
In conclusion, while investor feedback can be valuable, founders should approach it with caution and focus on building a strong business regardless of individual rejections. Doing thorough due diligence on potential investors is essential to ensure alignment and avoid potential conflicts down the line.
