6 business benefits of saying "No" in Singapore

As a CEO/Founder of a startup, you seek to raise $1 million dollars. Everyone says yes to invest and you get the money. However, your company is valued at $1 million - should you be celebrating?

Often, many startups have struggled to get a right valuation and share dilution. It is tough trying to balance the need to keep the lights on versus the loss of company control and payout.

Investors take advantage of this to get a bigger stake at a lower valuation.

If you are at this point, you should call off the party and say NO to the investment.

Every NO gets you closer to a YES

In most sales bibles, it is decreed “every NO gets you closer to a YES”. The more people you pitch to, the more doors you knock on, the more cold calls you make, and the more sales you will close.

Don’t be afraid to be turned down by investors or turn them down. Keep knocking on potential investors’ doors and you will get there.

There is the much fancied “80/20” rule, where 20% of who you speak to will give you 80% of your desired funds.

If you need $200,000, you need to speak more than 20 potential people about it and you are likely to 4 - 5 investors to commit the amount.

Many NO’s is a good thing

When pitching your startup to investors and getting an overwhelming amount of YES’s - it is likely that you have set the wrong price. Assuming that your startup is doing decently and there is much interest from investors, you should be able to value your company much higher.

Multiple interest from investors means you should maximize this opportunity. To avoid cheapening your own company valuation, set the appropriate price point, once again, according to the 80/20 rule. If more than 1 in 5 investors agree wholeheartedly to your offer, stop and readjust until the ratio is reached.

kNOwing when to stop

Raising more money for your startup is absolutely critical to keep the business going. It is also necessary to know when to stop.

When you raise the same amount as your valuation, you no longer own your company.

Why give away so much of your company which you built from scratch?

Fund raising efforts should aim to keep valuations at levels that leave sufficient portions of the company to the founders. Ideally, only losing 15% - 20% per funding round and having 25% – 30% when the company IPOs.

Also, raise enough to get to the next stage and not to pad the bank account. Each round of funding should have a goal (to hire more developers, set up an overseas office, major publicity blitz, etc).

Don’t sacrifice more stock just to feel secure – there are always future rounds to find cash.

NO time to waste

Working almost 24/7, startups do not have the benefit of free time. Every second has to be well spent so while raising cash is vital, it is almost always a waste of valuable time. It will take between 1-2 days to pitch your business and then it may take weeks to 1 month for an answer.

Keep in mind, if 4 in 5 investors turn you down, 4 – 8 days could be wasted just retelling your story and business plan.

So it depends how much time and money you have left. If both are running out, lowering your valuation is acceptable to a get deal done to save time and keep the business afloat.

Be upfront to your potential investors before hand on how much you want and how much time they have to respond so the meetings are worthwhile. Focus on those who have the funds and track record to back it up.

NO more investors than needed

Though you may request for the same cash investment from every investor, each investor will come in with different amounts and offerings. Besides money, investors can open up their network to introduce others to fund your company. Their advice could also be invaluable to your business.

Always pick and choose carefully – not all investors add value to your company. There will be some that will bring your excessive headaches in asking for monthly or even weekly reports.

They may insist that you change your strategy and pivot. They may say it is protecting their investment, however, it is more like non-conducive micro-management.

Summary of NO’s

Startup life is usually a hard path so it is human to yearn for positive affirmation and hate rejection, especially from investors.

Valuations are subjective – it can be whatever you want it to be as along as you can get others to agree. Major companies like Apple, Google and Facebook are traded at multiple times their P/E ratio, with no questions asked.

So, no matter if you back up email, buy / sell traditional media online or organize online marketing seminars -  when you are raising funds and setting valuations for startups - you would like to seek out refusals.

In fact, the more no’s, the better off your startup will be. Hold out for the right valuation, regular stock dilution and appropriate investors.