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When to say "no" to potential investors

November 19, 2022

Imagine your startup team gets an offer for investment. Hooray! But the offer requires you submit lots of extra information about your company that other investors aren't asking for. Or a requirement for special terms and treatment. Or a requirement that you raise a bunch more money first before their check triggers.

There's been a lot said on how to get investment for your startup. (I wrote  Fundraising tips for carbon removal startups" awhile back)

This time, I wanted to specifically write about when it's valuable to say "no" to potential investors. This is based on my experience over the last year working with 59 startups through the AirMiners accelerator, talking to early teams in the AirMiners community, and my own personal experience fundraising. (video here, 5 min)

• Who this is useful for: Knowing when to say no is valuable for founders that are fundraising or will be fundraising in the next 6 months. If you're on a startup team with someone else who is fundraising, you can better understanding the process and support your team. It's also good perspective for investors on how the startup fundraising process works from the founder's perspective, or if you're curious.
• The risks of "yes": The challenge is if you say yes, what does this mean for your company? If the terms have long term implications, does this limit your potential or close off options too soon in this emerging carbon removal market? If the terms apply for all other investors in the round, potentially investors you've already signed on, does it means you need to backtrack, taking you further away from closing your funding? Does saying "yes" to this one investor get your round closed out, or do you still have plenty of time and pain ahead even if you stretch to say yes for this one? Do the terms require some kind of committment about the future carbon removal credits you generate? These are all examples of where it can be better to say no and continue your search for other investors.
• Is "yes" to a junky deal all that good anyway? What's the big appeal of saying yes, anyway? Well, the thinking goes, if you just say yes, you can get back to work removing carbon; fundraising is a different skillset and takes up time on your calendar that you could be spending on actually taking carbon out of the freaking sky. Even worse, fundrasing can be a personal, painful process of getting turned down, being ignored, feeling devalued. So if you just say "yes" then the pain goes away and you can get back to work, right? But if you really think about it, saying yes when it should be "no" will just create bigger problems, waste more of your time, and cause you more pain later.
• Use the experience to learn: If you're not totally sure about saying "no", you can also use the opportunity to learn by asking questions. If deal doesn't seem good to you, ask the investor what's valuable about these extra conditions for them. There may be some other way you can address what they're really asking about, and at least you'll understand them better so you can find investors that do fit.
• Customers, grants, non-dilutive funding too: This is written for the perspective of equity funding but can generally be applied to grants, non-dilutive funding, or big customers. Equity funding is at least somewhat standardized as are grants, but selling carbon removal credits especially is new territory and the basics are still being figured out, which makes it even less clear what a "good" or "bad" deal is.
• A better way: Frame investment in your company as an opportunity. This is your company, you're inviting investors to join. They will make a lot of money if everything goes well. In an accelerator session this week one of the CEOs shared that fundraising switched for them when they went from being afraid and guilty about asking for money to framing it as an opportunity for investors to make money. As Adina told all the teams in a recent session, you always have veto power in any deal. When you turn down an investment offer, you're setting a boundary about who gets to participate in the opportunity you're creating.

Have you ever needed to say "no" to a deal you really wanted to say "yes" to? What did you learn? Hit reply!

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