One of the biggest struggles that startups have is finding investors in their startup. Investors are incredibly picky when it comes to making investments in startups. Investors see hundreds of startups and thus they know red flags when they see them. Here are six reasons why investors won’t invest in your startup.
1. There’s No Proof of Concept
You can find good ideas everywhere but only a few of those ideas will actually end up profitable for everyone concerned. Good investors know this and will only put their money into a company that has some proof that it can turn a profit.
Think of your profitability as your resume and your investor as a potential boss. Do you have a history of entrepreneurial success? Have you successfully run a crowdfunding campaign? Is this your first startup? Potential investors will want good answers for these questions or they may decide to take their money elsewhere.
2. You Have a Shaky Team
Operating a startup is not for everyone. You and your team must have experience in your field, enough so to withstand the rigors and demands of a new business. If your team doesn’t look like it can handle the project, it will turn-off potential investors.
Granted, you won’t always have an all-star team on every project, but you need to make sure that they have good credentials. They’ll need at least two years of experience in your company’s field, as well as strong recommendations from previous employers. Your idea isn’t going to get anywhere if your team doesn’t look like it can make deadlines.
3. Your Business Plan is Questionable
It’s said that no plan survives first contact, but you must at least have some sort of plan to begin with. You need to show your investors that you have a plan to take this business somewhere great. Interest from your target demographic is not enough – you need a business model that can effectively take advantage of this interest and turn it into growth. A bad or the lack of a business plan can not only send investors scurrying off, it can doom your project.
4. No Proof of Profitability
Your company must be able to turn a profit. That’s the bare minimum required for a company to get anywhere. People must be willing to pay for your product. Investors won’t put money into a company that can’t get sales.
5. You’re Resistant to Input
Entrepreneurs are often headstrong, but they’re also open to criticism. They’re still people and still fallible. Investors will often voice any concerns they have with the company or the founder and may hit some nerves. Responding negatively or harshly to criticism can cause an investor to rethink associating with that company.
Criticism can be difficult to take but don’t take it personally. Investors want to make sure that they’re betting on winning horse and will do everything they can to assure themselves that you and your company deserve the money. Whether you follow their advice or not is up to you and the advice they give. What you should do in either case is take the criticism well. Don’t snap at them or go online and write up a scathing blog entry – just take a deep breath, speak in calm tones, and engage them in discussion.
6. The Company Needs Too Much Money
You might think that your company deserves five million dollars but investors may not see it that way. Chances are that you may have overestimated the value of your startup. Be honest with yourself and look at what your company has accomplished and where it could realistically go in the next five years. Take the fact that you love your company out of the equation. View it as mechanically and as methodically as possible. If you value your company properly, investors are more likely to stick around.
Being an entrepreneur isn’t easy. You need to have a good idea, a good team, a company that can prove itself profitable and you need to show all of this to any and all potential investors so you can take it to another level. Before you talk to an investor, think about things from their perspective. Think about what would stop you from investing in your company and you will find the flaws that need fixing.
Thanks to Bizink for providing the content for this blog post!