Video by sammrchant

Why do VCs say no to good businesses? What most founders don't realize is that VCs are looking for outliers. They're not necessarily looking for good businesses that grow steadily and become profitable. What they're actually looking for is hyper growth companies that can scale to the size of company they need in order to return the fund. Here's the math behind this. If I have a hundred

million dollar fund and I promise investors a three times return, which is pretty standard, that means I need to turn my fund into 300 million dollars. Let's assume I own five percent of a company when it comes to exit, that means that company needs to be worth $6 billion for me to return the fund on that one single investment. And this is a metric that every investor is looking

at because they know so many companies in the portfolio are going to fail. Whenever I meet founders who are disappointed that investors are saying no to them, I remind them of this. VCs are looking for a very specific type of company and it doesn't mean your company is wrong or bad in any way. It just means it doesn't fit the VC model.