It’s no surprise that Investors say “no” to requests for investment more often than they say “yes.” However, they’re not always explicit about why they pass on a deal. Here are a few of the five reasons why Investors decide not to back a startup.
1. Inexperienced Founding Team
Investors will reject 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.
2. Lack of Business Model or Plan
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.
3. Growth issues
The main concern of any investor is the capacity for growth. If you don’t show a clear path to expansion and increasing profitability over time, a rational investor would require investors to spend even more resources — in the form of their own time — guiding their money in the right direction. This ties in with the last reason: There needs to be potential for growth, whether it’s through a receptive market or deep experience on the part of the entrepreneur.
4. Underestimate your competition
Startup founders often tell while presenting to investors “we have no competitors.” Generally, they find this difficult to believe and push back with “How is your target market currently solving the problem you intend to address? That’s your competition.”
Beyond this rudimentary knowledge, founders should thoroughly understand the solutions being offered by their competitors, which market segments they are addressing, and how they are selling. A company’s potential customers will be comparing the company’s product against other available solutions, and sharp founders will have properly positioned the product for success.
5. High Costs
Investors will not spend money on startups 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 fine. 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.
One of the toughest parts of the entrepreneurial journey is seeking funding from angel investors and venture capitalists. The five 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.
I hope that this article has interested and helps you improve finding investors for your startup. Feel free to share this article if you liked it.