When Do You Say “NO” To An Investor ?


Ravi Kikan
Ravi is a Mentor at MentorEdge ( A CIIE- IIM-A initiative), A Knowledge driven enterprise. He is a Growthhacker for Startups, Online Community Builder, Startup Connector and B2B Marketing Expert.

Sometimes You Just Need To Choose, Wisely 🙂

Not many entrepreneurs or founders will agree to this thought specially when the Number 1 Challenge for any entrepreneur worldwide in the seed or early stages is wanting to get FUNDS ! Yes some of the entrepreneurs may not even get to this stage of saying NO while trying every option in the world to hunt for funds.


Many entrepreneurs have also suffered as they have lost to the bait of giving away critical share or authority to the investors in this process.

In my own experience and having met or spoken with some brilliant entrepreneurs worldwide this is one question that I bounced out on. I put this question up for grabs in the Startup Specialist Community and had some great responses from kickass entrepreneurs worldwide.

So the question I threw open was “As a Startup have you ever said No to an Investor? Does it makes sense to wait for the right investor even when you are struggling ?”

Before I thank all those brilliant entrepreneurs who shared their views and insights, here are some of the top reasons:


  1. RETURNS: When the effort, expertise and time that you will invest in the business out weighs the startup capital, and the benefits you would get on evaluation don’t balance out. It also holds good when they want too much equity for the investment they are making versus the benefits they will bring
  2. DRIVERWho will be the driver of your business post your funding ? If the Investor is bringing unwelcome steering or controlling decision affecting your business. You say no (thank you) when their ideas for the company, product line or personnel are not in line with yours. Unfortunately (many VC) investors can like your idea but want a path to control. They love to “help” identify your CFO…..:)
  3. SMART MONEY, IS BETTER THAN MONEY: Smart money brings more than just dollars. These are investors with great social proof, connections, or assets that are specifically beneficial to your business. If you can, say NO to investors that aren’t a good fit, or who aren’t bringing anything else to the table, say no to the ones who treat you as though you are on opposing sides during negotiations for the round.
  4. TERMS OF LENDING: You should say ‘No’, to any investor whose term sheet looks like a lender’s document rather than an investor’s document. Most investors secure their money and lock in their returns at the expense of the promoter. Carefully check the Drag Along rights and the Exit Clauses particularly if they insist on a high guaranteed return on investment. Then it is not an equity deal in the real sense. It is always wise to wait for the right investor because struggle is a given in a start up. A wrong investor will only focus on his return. In the process, your shares will get further diluted if another (right) investor comes in at a realistic valuation.
  5. BEYOND JUST MONEY: There are a number of times and reasons from the actual cost of the capital, to how they plan to seat the board. Are they hands-on or hands-off the business? Does their portfolio align to your organization, product or services? Does their philosophy make sense?
  6. JUST ROI DRIVEN: You say NO to an investor when he/she are interested only in numbers and not in operation hurdles, your great idea, your passion to succeed. Clearly he/she is not visionary or may not be supportive in your critical operational chores. You will always carry a burden of such investors. Better walk alone than walking with an assassin.
  7. DO YOUR DAMN HOMEWORK FIRST: Investors come in many forms…hands on, arms length and cash only: which means…they want to be In (make decisions for their percentage), they want to influence (limited decision making but active monitoring of their investment) or hands off (they are a bank..no more no less). Unless you really know what they are bringing to the table that will help fuel your company forward with an anticipated limited ownership period for their investment with an expected payoff date..in every case, you are also running the risk of losing more than you might think you are gaining. Investors and partners, while they have their place and can bring benefit …..can also create the worst of business divorces. If at all possible, first seek the option of having them as a lender…hands off for exchange of a fair interest rate and term. If you fail, they are getting your assets anyway. If you are expecting to keep ownership of the business, ensure their voting and decision making rights can never over rule yours. If you are looking to investors as a means of an exit strategy, invest in a great business lawyer up front…to protect your return at the end. Be very careful. Like marriages, all business partnerships and investors start with the best of happy and intentions filled with potential…but when the honeymoon is over…the real personalities begin revealing themselves..and it can be devastating.
  8. GUT FEEL: When you sense that post-money your freedom, expression, being, passion, command, freshness, etc could be even a fraction less than pre-money situation! An investor needs to understand your vision otherwise it is simply not worth their capital, if they want to make changes etc. especially before you’ve even taken their money that’s a massive red flag.
  9. LIMITED LIABILITY: Don’t sign if the investors ask for personal warranties. Some of the entrepreneurs have been made bankrupt through other’s actions. Only accept liability in direct relation to your ability to control and/or exit. This is where a lawyer comes handy.
  10. DUE DILIGENCE: A Key Attorney and a Key Note Speaker pointed these critical things. AFTER you have done your due diligence and discover things about the investor that a reasonable person would deem questionable. Here are some questions that are recommended for startups to consider getting answers to:
  • Are they who they say they are?
  • Can they do what they say they will do?
  • What do you need to give up in exchange for their help?.
  • What do their client references say about how they do business?
  • Why do they want to help me?

Having said that however, you also need to understand that your demands from the investors are reasonable so that they will actually see their money back. One of the reason why they tend to try to dominate the venture so much is to protect their investments and the ROI. If you can assure them the investment will deliver, then I’m sure the need to say no will be lowered by a huge ratio.

What are your thoughts and experiences on the same ? Do share.

Note: The views and opinions expressed are solely those of the author and does not necessarily reflect the views held by Inc42, its creators or employees. Inc42 is not responsible for the accuracy of any of the information supplied by guest bloggers.

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