25 Reasons An Investor Won’t Touch Your Startup

There are quite a few articles, written by various venture capitalists (VCs), which aim to give entrepreneurs the heads up on what investors really expect when investing in a startup business. Our advice though, is to start with this great post by Nic Brisbourne. A seasoned VC and Managing Partner at Forward Partners, his post is clear, concise and focused so we definitely recommend heading across for a read.

In the meantime, since you’re here, here’s our take on what to avoid when you’re looking for investment in your startup:

  1. Failing to prove your startup’s potential

So many entrepreneurs get so caught up in their idea that they lose focus on the bigger picture. For instance, failing to evidence why and how their startup is going to be a success. If you’re in front of an investor you need to be able to prove your idea has traction and that there is demand and an actual market. You also need to prove you’re capable of making sure your startup reaches its full potential. If you can’t prove your idea is worth the investment, why would anyone be interested?

  1. Overvaluing your startup

Your startup is your baby; as such it will be worth a lot more to you than anyone else. You might think it has a market value of £10 million but an experienced VC will cut through that figure straight away. You need to make sure you can prove your company’s worth; doing so by evidencing past achievements and proving its earning potential. If you don’t take the time to value your startup properly and give evidence as to why you’ve reached that value, a VC will not see a viable investment opportunity.

  1. Failing to establish trust

An investor doesn’t just invest in the company; they invest in the person. You need to be able to establish a connection with an investor; they must immediately feel they can trust you and work with you. No one, no matter how amazing the service or product, is going to invest their money if they aren’t sold on you as an individual.

  1. Ignoring proper procedure

Following on from the previous point, no investor worth their salt is going to invest in a startup where the founder has obviously cold called or emailed every single VC they could get contact information for. You need to do the proper research and talk to other small business owners and startups that have been through an investment process. Doing this will help you gain a referral or recommendation to an investor from someone they know and trust, which will at least get you in the door a lot easier than cold calling ever would.

  1. You’ve chosen the wrong investor

Proper procedure should dictate that you do research before approaching investors and as such only approach those who have experience within the industry your startup is operating in. Trying to get investment from someone who has no experience, or possibly interest, in your field is not the best way to introduce yourself. Why would an investor want to put their money into something they are unfamiliar with or dislike? Do your research!

  1. Not investing in your team

As a startup you won’t be able to spend all your money on staff, however, there is definitely something to be said for the startups that do invest in their employees. Investors need to be able to trust in your team, as well as you. After all, it is the team who will be doing the work. It’s therefore really important to make sure your team are properly qualified and can evidence their experience; thus proving how they can make the startup a success.

  1. Lack of teamwork and relationship stability

Investing in your team is not just about getting the best designers, marketers and technical geeks available. It is also about ensuring your team is stable and fully committed to the project. If there is constant internal bickering and the working relationships amongst the team are poor, it will send out huge warning signals to investors.

  1. You seem to lack the proper industry expertise

When approaching an investor, you need to know your stuff. You must be able to quote facts and figures about the industry you’re operating in and show you know the specific business sector inside out. You will need to provide relevant examples that show you have the knowledge required to be able to target customers.  If you fail to prove you have relevant knowledge and insight, an investor will assume you’re unfamiliar with the related area and won’t go near you.

  1. Failing to be upfront and 100% honest

One of the key factors of gaining investment is to ensure you are 100% upfront and honest. Hiding something from an investor is not the best way to start a business relationship and you can be sure they’ll find out anyway! You need to build up trust from the outset. Don’t be concerned that you have to share every single aspect of your business; just make sure there aren’t any skeletons in the closet and that everything has an explanation.

  1. Inability to produce a proper business plan

No matter how small your startup is, or how busy you are, there is always time to create a business plan. A business plan should detail where you plan on taking your startup over the next few years, so if you fail to produce one, or you don’t provide enough detail, an investor will quickly lose interest in your business.

  1. There’s no marketing strategy

Do you have any idea how you’re actually going to market your product? So many startups fail because, even though they have a great product or service, no one knows about it or customers are just more aware of competitors. You need to have a marketing plan in place a long way before you plan to start selling. The plan needs to show, in detail, how you are going to promote your product, boost sales and get ahead of your competition.

  1. Inability to prove your startup will make money

Can you show any external interest for your product? For instance do you have an expression of interest from another company or any pre-orders? Anything at all that shows your product is fulfilling a need and will make money upon its release is crucial to show to an investor. If you can’t prove there are people willing to pay for what you’re providing, it’s not going to be of interest to an investors.

  1. Lack of trust in how you’ll spend the investment

Have you planned how you’re going to spend the money you get from an investor? If not, there’s no point asking for it. You need to be able to prove you have a good head for figures and are able to spend, as well as save, wisely. If you have spent unwisely in the past, flittering money away on useless bumf and products such as branded pens, mugs and key-rings, then you’ve got a long way to go to gain the trust of an investor.

Be aware that an investor will be keen to know how much your salary will be. If you are more focused on your own finances and earning a huge wage, it gives across the wrong impression to an investor, who is more interested in how you’re going to make the business a monetary success, not yourself.

  1. Failing to provide evidence that you can do what you say you can

Many people have great ideas; however, not everyone is capable of making their great ideas a reality. You need to prove to an investor that you’re one of the special people who can make it happen! How you do this is up to you but it is perhaps worthwhile spending time creating a prototype and doing some market research to show your product in action with potential customers.

  1. Your idea lacks originality

It can be hard to accept but sometimes your great idea won’t be that great, simply because it’s not unique. If you are building on something that already exists in the marketplace, firstly, you have to be careful you’re not infringing any rights and secondly, you have to be able to excite an investor and show them exactly how your idea is different and exciting. Many investors will simply refuse to invest in something that’s not entirely new, unless they can definitely see how you can beat the competition.

  1. Failing to react well to constructive criticism

If you fail to accept criticism from an investor, it will send out clear warnings that they’re right not to take a chance on you. Many entrepreneurs become so caught up in their great idea that they find it impossible to think about ever changing it, even a little. A little defensiveness can always be expected in these situations; however, if you’re unwilling to listen and take advice from experts who will have seen countless startups try and fail, you’re just showing that you’re an unwise investment.

  1. Failure to focus

You need to be able to show investors that you have a great deal of focus and can stay on track to ensure your initial idea is a success before trying to juggle many other ideas/products all at once. If you show a distinct lack of focus it will scare investors off since they won’t be able to trust in your ability to focus on a singular idea with the aim of creating the very best product possible.

  1. You’re pitching something that is already on its way out

Technology is moving faster than anyone could have ever predicted. Whilst this is excellent for the consumer, it creates problems for entrepreneurs who are busy concerning themselves with the “next big thing”, only to discover that whilst they’ve been busy working that time, technology and would-be customers have all moved on. There is no point asking for investment in something that will be out of date as soon as it is released onto market.

  1. Failing to react quickly

Our world is getting increasingly fast paced; as such if you fail to quickly react to changes in the marketplace, it just gives the impression of a plodder. It doesn’t matter whether you are a perfectionist or your confidence is a bit low, you must remember that the longer it takes to get your product to market, the longer it takes for an investor to get a return on their investment. In this day and age it is common to see various versions of products being released and then updated at a later stage, so do keep this in mind when approaching investors.

  1. You’ve lost sight of why you started the business

The beauty of many startups is that they are started because the founder really wanted to solve a problem and because they really believe in their product. The issue, as far as investors are concerned, is when there is an obvious shift in focus from the original addressing of a problem with a realistic solution, to the actual running of the business. The business obviously must be run properly but an investor needs to see that your main focus is still on the product.

  1. You’re too focused on the present

Too many great ideas stem from current trends, which is dangerous since it shows an investor that you haven’t really considered the long term. Yes, you do need to think about the present day, however, you also need to show an investor that your startup has longevity and that you have the research to back this up. There’s always going to be some risk, since no one can predict the future but you’ll give an investor much more confidence if you can at least show you’ve thought about the future, as well as the present.

  1. There’s still a long way to go before investment

Investors tend to want to see something that already has traction. As such it is important to approach them when you can show your in-depth research into the relevant business niche, interest from potential customers and/or interest from other investors. Investing always carries elements of risk but no investor wants to give money to something that is totally unknown.

  1. No one else has expressed interest in investing

The biggest pull for investors is when others have expressed an interest in your startup. If other VCs are supporting your business and believing in you, it gives other investors the confidence that they might be able to do the same. On the flipside, if no one has expressed any interest whatsoever, it may well put those you approach off investing.

  1. Failing to accept rejection

Part of the investment process will always be rejection. How you deal with rejection will say a lot for you as a person and may even influence those you approach. If you choose to focus on the negatives of being rejected, it won’t do you any good whatsoever. If, however, you can show investors how you have learnt from your rejections and how you have made or will make relevant adjustments, it can vastly improve your chances of investment success!

  1. You’re ignoring all of the above!

A key annoyance for many investors will be when they can see you blatantly ignoring many of your flaws and carrying on regardless. No one expects you to be perfect but an investor will be more impressed if you can identify your faults and work on resolving them. Someone who can admit their weaknesses is a stronger character than someone who can’t and therefore presents a more worthwhile investment opportunity.