Quora Answer: Why Do Startup Founders Often Decline Venture Capital Funding?

The following is my answer to a Quora question: “Why do startup founders often decline venture capital funding?” 

Startup founders have declined venture capital funding, but it does not happen as often as venture capital rejecting startups.  There are many reasons I can think of, but the most common reason is that the terms of funding are unacceptable to the board.  Money comes with strings attached.  If those conditions are not in the interest of the board, they will reject it.  Sometimes, it is because of the unrealistic expectations of the board.  They want money, but they do not want the accountability.  They do not want to lose control.  They quibble over loss of equity. 

Another reason why founders decline funding is because they have other funders, or do not need those funds.  Just as funders meet dozens of startups a session, startups present to many different funding groups.  They will take the first one that comes along, or the one with the best deal.  Taking one funder precludes taking another at the same stage of funding if the capitalisation table cannot accommodate them. 

Another point of contention is conflict of interest.  From a funder perspective, they are hedging their bets by investing in several startups in the same space.  From a founder perspective, there is confidentiality concerns if the same funders are investing in your competitors, and the mentor is a party to a competitor.  No discerning funder would take that sort of risk. 

Finally, perhaps one of the more common reasons why startups decline to take funding is simply because it fell apart, and founders cannot get along.  This is actually quite common.  Different working styles, different expectations, different visions doom startups.  Money changes people, and when funding is on the table is often the point of the first fight.