Money For Nothing? Reasons why Investors Won't Invest in Your StartupDate: 19/01
Por: Marco De Biasi
No matter what stage your startup is in, you’re probably going to need some investment money. So to save everyone a lot of time, here are some reasons we personally would not suggest to invest in a startup.
Every investor wants to bet on a winning horse. But that’s the risk taken on a gamble: you can lose money. And the same can be said about investing in startups.
Review and address these points when trying to secure funding from an investor :
Proof of your potential success is missing.
There's no evidence that there's interest in your startup or that it has some traction. Have you sold anything yet? Have you launched a startup before? Passing those tests would prove to me that you have what it takes to get this startup off the ground.
Show us that your business is something worth my putting my hard-earned cash into and that this investment will work hard for me as your company starts to have success.
I don’t trust you.
We typically invest in people. You could walk into my office and pitch me one heck of a product. Yet I’m not sold on you as a person, so forget about my investing in your company.
If we can’t trust your character, judgment or leadership skills, then let’s not waste each other’s time.
You have an inexperienced team.
Members of your team seem to lack the experience needed to operate a startup.
Let’s say that I like you and your idea but not your team. Don’t expect an investment from angels. They need to be sure that members of your team have the qualifications and discipline to complete tasks, meet deadlines and follow through on objectives.
Members of your team don’t work well together.
The co-founders or team members of your startup are constantly bickering. So we are going to become uneasy about your startup. We don’t want to risk an investment in a setup if the colleagues can’t get along. Does everyone get along on your team?
You're keeping things from me.
You're keeping every piece of information from me. I’m not asking you to reveal every little secret regarding your startup. But if I’m investing in your company, I have to at least know the basics of what makes your startup tick.
Investors want to know everything about your startup. Don’t worry: I won't steal your idea. I'm too busy.
You don’t have a business model or plan.
You have failed to tell me how and where you expect to take your startup in the next couple of years, though you indicated that there’s interest in your product, That’s why creating a business plan is such an important piece of the puzzle.
If I’m not impressed with your business plan, then I won't invest in your startup.
Evidence that the startup will earn money is scant.
There are no preorders or not many signups for your product or service. So I won't be interested in your company. If you can’t prove that people are willing to pay for your service, then why should I, as an investor, give you money?
I don't believe you can build your product.
A great idea is one thing. Making it a reality is another. You haven't convinced me that your product can actually function. I personally need to see some sort of working prototype. I'd like to also see a few customers using your product.
Your startup costs too much.
You may think your new company is worth $10 million. But I believe that it’s worth only one-tenth of that.
Figuring out the value of your startup can be a challenge. The value should be based on past accomplishments and the company's potential. If I feel that a startup is being assessed at a value that's too expensive, I’m going to look for another investment opportunity.
You handle rejection poorly.
You have come across like those entrepreneurs who gripe and moan about how unfair life is. Sure you'll be rejected by investors. And that’s part of the process. But handle that rejection properly.
Identify what went wrong and make the proper adjustments. What happens after the pitch and rejection says a lot about an entrepreneur. Investors are watching, even after they’ve said no.
I’m not the right investor.
Your company is not operating in my area of expertise. Just like a doctor might have a specialty, so do investors. Do some research ahead of time and locate the investors who are involved in your field.
You don’t focus.
You're trying to launch every single product idea that you have. Instead stay on track and focus on creating the best product that you can release.
You’re not going to please every customer. But you do have to please the right customers or the situation will come back to burn you -- perhaps in an online mention.
You’re too slow to launch a product.
Your company is moving too slowly. Whether it’s because you lack confidence or are a perfectionist, the longer it takes to launch your product, the longer it takes for me to see a return. Remember, there’s nothing wrong with releasing a version 1.0 and making the appropriate adjustments at time goes on.
You lack a marketing strategy.
Your startup is poised to begin selling a product but lacks a plan for how to boost sales and gain a competitive advantage. I, along with thousands of other investors, can tear your startup apart in seconds. Have you set marketing goals? How will you promote your product? These are crucial marketing questions that need to be addressed before you come knocking on my door.
You don't understand the industry.
As an entrepreneur, you don't seem to be familiar with the business sector involved so I'm not interested in investing in your startup. If you had experience in a related area, that would at least inform me that you have some knowledge relevant to potential customers or an inkling about how to enhance the industry.
Break down the actual numbers that concern your particular niche of the industry and know them solid. If you don’t have those figures, I’ll assume the worst or even more awful, I’ll come up with my own calculations.
You don't understand the word "lean"
You're spending money on things like branded hats, key chains or coffee mugs. Why would I want to invest your startup? An investment is supposed to go a long way toward getting a product ready for launch. That means not spending a ton of money on swag. A couple of T-shirts for promotional purposes is fine, but don’t go on a spending spree.
Also, don’t be paying yourself a big fat salary just because you’re the boss. Many studies indicated that 66 percent of Silicon Valley startup founders using its benchmarking tool gave themselves salaries lower than $75,000. The average around the world is $32,000 to $72,000, according this research. How much are you paying yourself?
You're not concerned about tomorrow.
Your startup seems to be based only on a current trend. You can’t expect a startup to have longevity this way. We know that we can’t predict the future, but we want to invest in startups whose owners are thinking about the future, not just contemporary trends.
There aren't any other investors.
We are not finding evidence that others have invested in your business, even a couple of thousand dollars. Unless I’m a fervent believer in your startup, I need to see interest from other investors. The presence of other investments gives me an indication that someone else sees potential in your startup and that other people are support your vision. Having a couple of investors is good as they will help promote your business.
Let these reasons that I won’t suggest to invest in certain startups, it may serve as tips for every startup founder to remember when pitching an investor.