As a founder, you are often told that “capital is fuel.” But for many entrepreneurs, the quest for that fuel ends in a “No” from investors, or worse, a failed company just months after a successful raise.
To win the funding game, you have to understand the Investor’s Perspective. They aren’t just looking at your idea; they are looking at a set of risks that you might not even realize you’re projecting. Here is a pragmatic look at why funding fails and how you can beat the odds.
1. The “Transparency” Trap
The biggest hurdle to a deal is Information Asymmetry—the gap between what you know about your business and what the investor can see. If an investor feels you are hiding “dirty laundry,” they won’t just ask questions; they will walk away.
- The Problem: Investors spend weeks on “Due Diligence” (homework) trying to find what’s wrong. This process can be slow and often kills deals.
- The Fix: Adopt a “Notation Mindset.” Use a third-party framework (like the French “Tryptique” of Human, Market, and Governance) to audit your own company before you meet a VC. Providing a clear, standard “note” on your governance can reduce an investor’s analysis time by more than 50%.
2. Crossing the “Series A” Chasm
Many founders celebrate their “Seed” round as if they’ve already won. However, the statistics are brutal: only 10.1% of startups successfully transition from a Seed round to a Series A.
- The Problem: Most startups fail here because they focus on “Vanity Metrics” (like social media followers) instead of Unit Economics (actual profit per customer).
- The Fix: Focus on your LTV/CAC ratio (Lifetime Value vs. Customer Acquisition Cost). Investors in 2026 are moving away from “growth at all costs” and toward Sustainable Unit Economics. If you can prove that $1 in equals $3 out, you are in the top 10%.
3. The “Founder Pedigree” Bias
Investors often use Signaling Theory to make decisions. They look for “signals” of quality, such as where you worked or if you’ve founded a company before.
- The Problem: If you aren’t a “serial entrepreneur,” you start at a disadvantage. Repeat founders raised 38% of all major VC rounds recently.
- The Fix: If you lack the “pedigree,” you must over-deliver on Traction. Use a Scorecard Method to benchmark yourself against industry leaders. If your growth rate or product prototype is better than the “average” funded startup, your data becomes a stronger signal than your resume.
4. Avoiding the “Down Round”
A “Down Round”—raising money at a lower valuation than before—is a death spiral for most startups. It happens when your initial valuation was based on “hype” rather than reality.
- The Problem: Startups that were over-valued in 2021 often faced 30-50% valuation cuts in later years.
- The Fix: Be realistic. Use the Venture Capital Method to work backward from a realistic exit price. It is better to have a modest, achievable valuation today than a massive one that you can’t live up to tomorrow.
Summary: Your Pragmatic Checklist
Before your next pitch, ask yourself:
- Is my data “Audit-Ready”? (Reducing Information Asymmetry)
- Are my Unit Economics sustainable? (Beating the 10% survival odds)
- What “Signals” am I sending? (Using Traction to overcome a lack of experience)
Conclusion
The methods VCs use to evaluate you are still incomplete and imperfect. They are often biased toward certain types of founders or industries. However, by understanding these notation models, you can speak the investor’s language and turn a “Maybe” into a “Yes.” The goal isn’t just to get funded—it’s to build a business that is sound enough to survive the statistics.
Lexicon
- Burn Rate: The monthly rate at which your company spends its venture capital.
- Due Diligence: The rigorous verification process investors perform before signing a check.
- Signaling: Using observable achievements to prove the unobservable quality of your startup.
- Traction: Quantitative proof of customer demand (revenue, user growth, etc.).
References
- Abdesslam, M. & Le Pendeven, B. (2022). ‘Les enjeux de la notation des start-up en phase de démarrage’, Revue internationale P.M.E., 35(1).
- Bouheni, F. B. et al. (2025). ‘Credit Sales and Risk Scoring: A FinTech Innovation’, Journal of Risk and Financial Management, 4(3).
- CBS (2018). An empirical study of startup valuation, Copenhagen Business School Research Portal.
- IE University (2025). The Rise of Startups and Venture Capital in Latin America and the Caribbean, Global Policy Center.
- Miloud, T., Aspelund, A. & Cabrol, M. (2012). ‘Startup valuation by venture capitalists: an empirical study’, Venture Capital, 14(2-3).
Signed, IA
