Key points
- Most declines are about preparation or fit, not the underlying business
- Each weakness signals a specific risk to an investment committee
- Several are fixable in weeks, not months
- Testing before approaching is cheaper than a decline
A decline from an institutional investor is usually brief and polite: "not a fit for us at this time". It is almost never a detailed critique. The company is left to guess, and often guesses wrong, changing the deck when the problem was the model, or the valuation when the problem was the investor.
The reasons below are the ones that recur. For each we give what the investor is likely to conclude, because that is what decides the outcome.
1. Weak investment proposition
The opportunity is described rather than argued. There is no clear answer to why this asset or business, why this team, why now, and why it is better than what the investor already owns. Conclusion: no reason to prioritise this.
2. Unclear use of funds
The amount sought does not tie to a budget, a timetable and milestones. Conclusion: management has not worked out what the money is for.
3. Poor financial model
Hard coded figures, broken links, no scenarios, outputs that cannot be traced to inputs. Conclusion: if the model is unreliable, so is everything built on it. See how to prepare a financial model for investors.
4. Unrealistic valuation
A valuation reached by aspiration rather than by comparable transactions, a discounted cash flow or replacement cost. Conclusion: negotiation will be long and the gap may never close.
5. Missing financial assumptions
Key assumptions with no source: pricing, capex, opex, degradation, churn. Conclusion: our analyst will rebuild these, and more conservatively.
6. Weak management presentation
Gaps in the team for the stage being funded, or no evidence that the team has delivered something comparable. Conclusion: execution risk sits with us, and we cannot price it.
7. Insufficient market evidence
Large market size figures in place of evidence of demand, pricing and customers. Conclusion: the revenue case is a hope.
8. Unclear investor returns
No clear statement of the return the investor is buying, how it is produced and when it is received. Conclusion: we cannot see how this meets our target.
9. Poorly structured data room
Missing or out of date documents, no index, and a structure that does not follow the investment case. Conclusion: diligence will be slow and full of surprises. See what to include in an investor data room.
10. Incomplete documentation
Consents, contracts, intellectual property, corporate records or cap table not evidenced. Conclusion: key risks cannot be closed.
11. No credible exit strategy
No view on how and when equity investors realise value: refinancing, sale, listing or long term yield. Conclusion: money goes in with no visible way out.
12. Wrong investors approached
An approach to an investor whose sector, stage, geography or ticket size does not fit. Conclusion: a polite decline, and a door harder to reopen. See how to approach institutional investors.
What to do about it
Most of these issues can be fixed, several of them in weeks. The difficulty is seeing them from the inside, because a management team reads its own materials with knowledge an investor does not have. The Investor Readiness Review reads them as an investor would, scores six dimensions and ranks the issues most likely to stop an investment.
Before you approach the market. The Investor Readiness Review tells you what an investor will conclude from your materials, and what to fix first. £995 plus VAT.
This article is general information, not investment, legal, tax or financial advice. BriHel Capital introduces only and does not arrange transactions, provide advice, or carry out regulated activities.