Why Investors Won't Invest in Your Startup

Presented by GOTO Market Institute

Happy Tuesday. Google's parent company hits a $2 trillion valuation, AI is threatening job security for middle managers, and investors reveal the real reason they won’t invest in your startup. Here’s what’s happening in SaaS this week.

• Google's parent company Alphabet hits a $2 trillion market cap milestone, demonstrating their continued dominance in cloud computing and AI investments.

• A Wharton professor warns that Microsoft's Copilot and Google's Gemini risk automating middle management positions.

• An angel investor shares why investors often pass on founders and advises that they focus on demonstrating a clear path to shareholder returns.

Investors Won’t Give You the Real Reason They Are Passing on Your Startup

Those of us who have been through the startup fundraising grind know all too well how gut-wrenching it feels to get rejected by an investor. You pour your heart into crafting the perfect pitch, only to be met with a polite "no thanks" and little else in terms of explanation.

More often than not, the real reasons behind an investor passing are far more blunt than what they're willing to share with founders. According to Tom Blomfield, a Y Combinator partner with first-hand experience launching a unicorn as Monzo's co-founder, investors are really making a judgment call on the perceived quality and potential of the founding team — not the specific flaws they may point out in your business model or product.

As Blomfield frankly puts it, investors think to themselves when passing: "I am not convinced this person is a winner." Ouch. But it's the harsh truth that most founders need to hear rather than getting misled by surface-level feedback on issues an investor likely cares little about.

The real takeaway? Don't obsess over random critiques — an investor passing likely comes down more to their belief in you and your ability to achieve outsized returns. And remember, many hugely successful founders faced countless rejections before finding product-market fit.

So, how can you convince risk-averse VCs to bet big on your potential as a winner? Blomfield shares the that key is to demonstrate a clear path to 100x returns through a compelling vision for a large, untapped market. Founders must paint a vivid picture of dominating their TAM with a scalable business model generating the home run returns VCs seek.

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Google Parent Hits $2 Trillion Valuation on Cloud Growth

It's been a banner week for Google and parent company Alphabet, which cemented its status among the world's most valuable companies by hitting a $2 trillion market cap. While search advertising remains its core revenue driver, it's the company's bets on AI and cloud computing that are fueling this next stage of massive growth.

At its latest earnings report, Alphabet highlighted the contributions of Google Cloud, which has seen success integrating new AI services like the generative model Gemini. CEO Sundar Pichai noted that over 1,000 new products have been launched in the past eight months alone for Cloud customers across industries.

It's clear Google views AI as the key to capturing more enterprise spending on technology. Beyond Gemini, the company is also developing its own custom chip, Axion, to facilitate the training of complex AI models at scale. And with $70 billion more allocated to stock buybacks, Alphabet is signaling confidence in AI's ability to sustain momentum.

The trillion-dollar valuation is a testament to Google's early AI-first strategy, which began laying the groundwork years ago for products centered around machine learning. Of course, leading such a sprawling technology empire also means facing challenges as offerings are put to the test on societal issues. Still, if any company is poised for success in this next wave of AI, Google's massive investments and integration with existing services like search and Cloud have set them up to do very well.

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AI Tools From Microsoft and Google Are Just Streamlining Middle Management, Leading AI Expert Says: WSJ

So you know how all the big tech companies have been pushing these new "AI productivity tools" lately? Well it looks like they might not be all they're cracked up to be according to one expert in an interview with The Wall Street Journal, Wharton professor Ethan Mollick voiced concern that Microsoft Copilot and Google Gemini risk streamlining certain roles in counterproductive ways.

To be more specific, Mollick sees a risk of these tools enabling surveillance of white-collar workers akin to Amazon's employee tracking. He believes that this enw technology could give employers and managers new ways to micromanage or displace human judgment without actually improving the quality of their work.

It's a sobering perspective that serves as an important reminder: if we’re not careful, AI is not guaranteed to serve everyone equally. And sure, AI can improve the way humans work when it’s implemented well, but safeguarding people has to be the priority. Going forward, Mollick recommends that we must explore AI’s impacts on different roles to ensure its oversight augments human skills rather than replacing them.

For their part, Microsoft and Google have continued emphasizing that generative AI is meant to empower its users. But with massive profits now tied to such offerings, they could be biased towards creating shareholder value versus ensuring job security for white collar workers. 

Read more.

Parting Thoughts

Well, that’s the tech news for this week. Hit reply and let us know — did you learn something from today’s newsletter?