Nobody wants to invest in an ugly startup. It's a problem on many levels:
1. Ugly startups will chase away customers. Customers are also sensitive to great visual design even if they may not be able to articulate it. Ugly startups look un-professional; there is doubt that this company is for real - if it was, they would find a designer and make it look great, right? They don't want to look at an ugly startup while using it either - it hurts the eyes. If this is true, then it could stifle your early growth and inhibit trial.
2. Ugly startups aren't brag worthy. If I invest in you, I want to talk you up. But if someone goes to the site and then comes back to me saying, "Gee that's the ugliest thing I've ever seen" - it affects me. Who wants to hear that? I want to hear, "Wow it's beautiful and cool - great job!"
3. Ugly startups show a critical team deficiency in design, at a minimum in the visual department and maximally in all areas of design. Designers are the hardest to hire for of any discipline out there; if they don't have one on staff now, will they ever be able to attract one? Or be able to get ahead of competitors who do have design on staff?
4. If you are ugly and can't get other investors on board, whether they actually come out and tell you it's because you're ugly or not, you're dead in the water. Other investors will stay away knowing that ugliness lowers the probability that anyone wants to give you money and introduces a higher risk that you'll die.
Time and time again, investing in startups has been likened to dating. Here is more proof of that - who wants to date someone you don't find attractive?