No investor wants to invest in a dying horse. No one wants to lose their money on purpose. However, investing in a startup can be both wise and unwise move. That is the risk of gambling. Thus, as you’re seeking funding, you need to understand that investors may not invest in your business because of various factors. However, you can review and address these following 15 reasons before pitching to potential investors.
1. Failure to Understand your Competitors
Every business has competitors, and every entrepreneur needs to understand its rivals and prove to the investor how it plans to handle the competition. A company demonstrates that it understands its competitors when it highlights how unique its solutions are when compared with its rivals.
2. Improper Cash Flows
Cash flows showcase the startup’s financial soundness. Therefore, an entrepreneur should exhibit its company’s financial true picture. Investors are veterans and have the capacity or expertise to identify entrepreneurs that have manipulated figures or acting like pompous business owners.
3. Lack of problem in the Niche Market
Every business is started with the intention of solving a problem; however, an entrepreneur can lose or shift focus along the way. Thus, not addressing the actual problem that motivated you to establish this startup will discourage investors.
4. Lack of Leadership Qualities
The co-founders should have the necessary leadership skills to manage the company. Both the owners and employees should work together without continually bickering. Investors won’t invest in startups where colleagues don’t get along well. They are also interested in seeing how you will apply your managerial skills to run the company.
5. Inexperienced Team
Investors will reject proposals from startups with inexperienced teams. They need to be sure that your team has the relevant qualifications, capacity, and expertise to operate the business. They need to have the discipline to meet deadlines, complete tasks and follow through on objectives.
6. Lack of Business Model or Plan
You should tell investors where your business will be in a couple of years besides telling them your passion and commitment. Therefore, the lack of a business plan will disadvantage you. Additionally, having a business plan is not a guarantee that investors will be attracted to your idea or products. Investors have so many opportunities, and they simply look for ways of rejecting your business. For that reason, ensure that your plan is perfect and demonstrate that it has the appropriate capacity to withstand tough competition.
7. Your Startup is Not Unique
Investors prefer to fund companies that have new ideas or that have come up with unique solutions than what competitors have. Thus, if you will be seeking funding in the future, ensure that your idea is new or study the old business model, identify gaps, and try to fill them.
8. High Costs
Investors will not spend money on companies that don’t understand the term lean. Startups that spend money on key chains, branded hats, or coffee mugs are considered spendthrift. Investors want their money to be used efficiently and adequately. They want you to use their money in getting products ready for launch but not on the swag. However, a couple of promotional items like T-shirts is alright. Additionally, paying yourself and executives huge salaries will discourage investors. Their only reason for funding your business is to gain profit but not to lose their money.
9. Lack of Marketing Strategy
Your startup may be poised to sell products; however, the company may lack a proper marketing plan to boost your sales as well as gain a competitive advantage. Therefore, investors will avoid startups without marketing goals to promote their products.
10. Not Understanding the Industry
Not understanding your industry will discourage investors. You should conduct thorough market research to understand the target customers, competitors, regulations, and other vital information. You should have relevant experience or a team with expertise and qualifications in this sector. Investors will not invest in your business if you don’t have actual numbers about your niche market.
11. Incorrect Approach to Investors
One of the greatest mistakes that new businesses make is cold, calling investors. New entrepreneurs ignore the factor that angel investors, venture capitalists, and banks receive numerous proposals; thus, several business opportunities. For that reason, investors will not respond to emails from unknown individuals. However, you can send your proposal through a referral or strong recommendation from their network.
12. Pitching to the wrong Investor
An investor will not fund a startup operating in a different area of expertise. Investors are like doctors; they have their speciality. Thus, when launching a new online women store, you can’t pitch to an investor in the real estate industry. As a result, a startup should do thorough research before approaching or pitching to investors.
13. Demanding Inappropriate Funds
You need to demonstrate your expertise, smartness, and farsightedness when pitching to investors. However, don’t request too much when entering into a new industry. Asking for higher funding demonstrate a lack of experience and knowledge about your industry, and this is a negative sign.
14. Wrong Product
Investors will not fund your startup when the product is not customer-centric. This means that your target customers will not buy your product or services when they come into the market.
15. Poor Projections
Investors will not fund a startup that is only concerned about the current trend and not tomorrow. Such a perception shows that the startup won’t survive long because its focus is just the contemporary trends. A startup potential is judged from the bright envision it carries. Thus, a company without a set of goals that solidify its profile will be avoided by investors.
One of the toughest parts of the entrepreneurial journey is seeking funding from angel investors and venture capitalists. The 15 points show the reasons why investors won’t fund your business in your business.
However, you can convince them by showing the bright side of your business. You can back your presentation with accurate data about your business, competition, and industry.
You should invest in a team with relevant qualifications and experience, approach the correct investor, and in the right manner.