Early-stage software startup investors screen thousands of companies to have hundreds of conversations with founders for every one company they invest in.

Here are the most common reasons that startups fall out of investors’ sales funnels and don’t close:

1. It’s not a great fit for the investor.

   Sure, most founders are not picky about whom they get investment from, but investors are EXTREMELY picky.

   Every investor has very specific criteria for the investment amount, stage of growth, type of software company, location, markets, and growth potential.

   Most deals fall out because they don’t fit the investors’ first filters, especially the stage of growth (revenue size) and proven traction so far.

2. The startup metrics are not good enough to meet the investors’ very high bar for investment.

   The startup’s SaaS metrics are too average or spotty., the M/M growth rate is too low, and churn is too high. Not every startup shows great progress so far, despite the hopeful enthusiasm of founders.

   Investors know that most startups will either fail or not grow up to be big, valuable companies. It’s a rare “1% of 1%” thing to get investment and win that game to pay back investors, so they want as much TRACTION proof as possible.

3. The growth, exit, and payback math don’t fit the expectation of these investors.

   Investors place bets with the clear expectation that their investment companies will grow much bigger and eventually sell for a big enough amount to pay them back big, as in 10X their investment or more. Previous capital raised and valuation matter here.

   Most startups won’t grow so fast or sell for such a big amount. This is where “TAM isn’t big enough” comes in. Investors are just saying “I don’t think you can grow big enough to exit and a big enough amount for us to get our payback.”

4. They don’t like the founders.

   The “horses in the race” that investors bet on are the founders and teams that have to succeed against all odds. Often it’s an interesting business but they don’t think the founders will do it or the founder-funder chemistry isn’t right.

5. Founders don’t demonstrate that they are fundable and ready to play this game.

   If founders are unreliable, overconfident, and unmanageable, then investors will stay away. They will test you in the funding process to see how you operate and how you handle challenges.

   Some founders want money but don’t want to play the game that is needed to get that investment. This is understandable and investors confirm that founders are “all in” on their VC-funded growth game.

6. You meet all these criteria, but the investor finds a better deal and invests in that startup instead.

Investors may have big funds, but they invest in a finite number of deals every year -2 or 5 deals. Founders are really competing against all the other companies the investor is seeing.

After all this, more than 50% of VC-funded startups fail outright or fail to pay back ANY return for the startup founders.