In metro markets like Boston, it is said that a venture investor looks at 100 deals, spends time on 10, and commits capital to one. One in a hundred … pretty bleak odds if you’re an entrepreneur looking for capital.

If you’re one of the 99 rejected (likely by multiple funds), you’re likely to have a range of reactions, from ‘the VCs don’t get it’ to despondency and despair that you may not get to see the ‘baby’ you’ve nurtured — with your focus, a lot of energy, and good deal of your own, your friends’, and your family’s money — grow up. Why so many nos?

In part, it’s a supply-and-demand thing — more demand for early-stage venture capital than supply, which is often referred to as the ‘capital gap’ and has been a perennial constraint for entrepreneurs since the venture industry began.

Supply and demand aside, there are plenty of reasons why investors pass on what appear (at least to entrepreneurs) to be good opportunities.

• Relative appeal … you’re good, but not as good. The investor is too busy working on other prospective deals that light his or her fire more than yours. On one hand, this is the byproduct of the capital gap — more deals than dollars means that the bar is very high to get funded given many other compelling options. On the other hand, it has to do with risk mitigation. Every early-stage venture is loaded with risk — market, management, financial, technology, etc. Risk itself isn’t so much the issue — venture investors know they are in the game of accepting and managing risk. That said, there are deals with more significant risks than others. The higher the risk elements relative to a given upside as perceived by the investor, the more likely they continue to look to the next deal for a more compelling risk-reward equation.
• Fit. Investors have preferences and biases toward sectors and business models that they like better than others. This has in part to do with the value an investor believes he or she can add to a given opportunity, linked to their background, network, and prior successes (or, inversely, avoidance of look-alikes to prior failures). It also has to do with the fit for the partnership. Investment funds are comprised of a team of individuals who tend to work on consensus — if one partner really hates an opportunity, it’s unlikely to get supported even if the deal’s champion loves it.
• Management, management, management. As location is to real estate, so management is to startups. Investors look for more than just a compelling market and product. They look for experienced, and complete, management teams that have relevant experience in growing a business in a given sector. If the team’s experience is lacking in the right kind of experience, many investors will pass rather than take a chance on a first-time team or lead executive.

There’s also the issue of chemistry. Investors recognize that the venture partnership created by investment is much like a marriage. So, if the chemistry isn’t there, you’re not likely to starting dating with a view to consummating that relationship.

While there are a good number of funds that will take on the challenge of re-creating or re-forming the starting team (often a painful experience for the founder who’d assumed that founding a company translated to running the company), many would prefer to manage other risk elements than the sensitive and complicated management one.

• It’s the economy. In the context of the current down economy, many investors withdraw from new opportunities for a couple of good reasons: 1) they want to preserve their capital for follow-on investment in their current committed investments, and investors backing the market are as afraid of their current portfolio exhausting their capital as the entrepreneurs are; and 2) investors who back ventures whose prospective customers are corporations are rightly concerned about the negative impact of a slow economy on certain corporate buying decisions — postponed or cancelled investment/purchase decisions, for example. Advertising-based businesses — in which companies seek to build audience so as to sell ads tied to that audience — are also likely to be out of favor, as advertising spending correlates closely to the economy.

So, is all hope lost in a down economy? Not necessarily. Some businesses and business models are more recession-immune than others. For example, a fund that I manage has a mix of technology and consumer products; our food portfolio is holding up at present, in large part because our commitments were made to companies that produce and market products in large, popular categories (e.g. pizza, pasta), which see less volatility in a down economy. On the technology front, opportunities that have very quick payback periods (e.g. less than six months) are more compelling to corporate buyers focused on taking cost out of their operations to compensate for the drop in their company’s revenue.

Even in good economies, entrepreneurs often find that it takes several ‘nos’ to get to a ‘yes’ from the venture market. In today’s economy, you can assume more nos to get to that yes, assuming you’ve got the right business model for the current and projected environment. Remember that higher risk (whether due to the venture’s inherent risks or to market-related risk such as economy and financing risk) translates in the venture community to requirement of higher return. So, expect that your prospective funders will need to discount more heavily, resulting in greater valuation compression than you would normally find for your company’s bundle of risk and opportunity.

These are the most challenging times that those in the VC business have witnessed. The negative side for entrepreneurs is greater difficulty in securing equity capital on favorable terms. On the positive side, down economies present opportunities to exploit larger companies’ contraction, allowing small ventures to get a foothold where they might otherwise be more challenged.

Look at your business and business model and adapt it, as best you can, to speak to the current market environment, and you’ll increase your odds of both surviving and potentially getting financing to keep your engine running.

Michael Gurau is managing general partner of Clear Venture Partners, a Portland, Maine-based, early-stage New England venture capital fund-in-formation targeting secondary cities such as Springfield; mg@clearvcs.com.