There are many reasons that VCs pass, but typically it stems from three potential conflicts:
1) They don't believe the idea can lead to a $1B+ outcome 🦄
Reaching a $1B valuation would require a clear path to $100m+ in revenue. The truth is most startups won't reach this milestone, and most probably shouldn't aim for it. Investors can come to this conclusion in many ways, but commonly we see these reasons:
- The market isn't big enough to support this outcome (e.g. the market itself is only $100M). The common mistake investors make here is not seeing where the puck is going (that's your job) - you need to convince them of the future where this market becomes $100B.
- The market is big enough ($100B), but is saturated with competitors, making it difficult to reach a meaningful percentage. Hard, not impossible - especially if you have a secret edge to capture marketshare.
- There is no market pull for your idea. Meaning they don't believe customers truly want what you're selling, or that they won't for long.
2) They don't believe you or your team has the necessary skills / experience / etc to reach $1B valuation
This one stings the most, and is also where so many VC mistakes are made. Prove them wrong.
3) Your startups simply doesn't fit their fund or investment thesis
Although it may seem like a common copout for investors, it can also be quite true. Investors raise funds from their own investors (limited partners) in which they've pitched their own vision of the future and how they plan to invest in it. Often times this includes specific (and unique) sectors, geographies and ideologies. Sometimes you're just not the right fit, and it's best to move on.