In this article, we will address some of the factors that deter investors to invest in your startups. First, we will look into why you might need investors, and then we will look into the concerns of the investor.
A sudden increase in Startups
We see a sudden increase in Startups because people are getting more and more intrigued by the idea of starting a company of their own. It is the success stories of the many entrepreneurs that have made the greatest impact on society’s perceptions of the business world.
Similarly, governments and social influencers are also promoting entrepreneurship and are keen on providing opportunities and platforms where investors can come and be introduced to new businesses. A few of the greatest examples are of
1. Bill Gates of Microsoft,
2. Jeff Bezos of Amazon,
3. Mark Zuckerberg of Facebook,
4. Steve Jobs of Apple, and
5. Elon Musk of Tesla.
These entrepreneurs not only succeeded in building a business from scratch but also turned their business into multi-million dollar conglomerates impacting the global economy and the future of the whole world.
Fuel to the startups
Most Americans by the age they pass college are aware of the art of running a business. They know about all the stages from the start to collecting capital and until the expansion. And there are many, who dream about it but only a few succeed in their quest. As they fail to find willing investors to invest in your startups.
Collecting capital for a business is one thing but then making a talented team and getting them along to join together and work as a team without betrayals is a daily struggle. Yet, experts mention that collecting enough capital to start and run a business remains the hardest part.
Need of investors
There are usually two options, either get a loan or find suitable investors to invest in your startups. The investor purchases a percentage of equity, whereas the banker would want a fixed interest income. Yet the first issue is to make them believe in your idea and make them agree on giving you the funds required.
Investors or venture Capitalists absorb the highest amount of risk as they are investing in a business that is still in its startup or idea stage. The future of the organization at this time is highly uncertain. Nobody can predict if the business will survive or fail. The investors rely on their experiences and several factors to decide if they may wish to invest in your startup.
Factors that Deter investors to invest in your Startup
We wrote this article to let our readers know about the investor’s likes and dislikes when deciding to invest in your startups. This may prove vital in increasing your success rate once you go through these points and implement them in your investor approach plan.
You are doing it wrong!
The most common mistake of an entrepreneur is the cold calling strategy. An angel investor or banker whether big or small does not have time to listen to all the calls and proposals. It simply isn’t practical and efficient. An idea of a business should be well constructed before trying to reach a prospective investor and then approach the investor by the means of a referral from an experienced professional. Try to have a direct meeting with the investor and present to him your idea in person. Along with, your business plan and financial viability plans. What are some challenges and what solutions do you provide is a good topic to start with.
Going to the wrong investor
We understand that searching for an investor and enough funding to support survival requires some desperation. But, going to each investor in your way will only increase your rejection rate. Not every investor invests money in all kinds of businesses. They have specific portfolios and they decide where to invest according to their own risk appetite. Know about the investors you are going to visit and handpick those who you would approach. Make planned decisions about choosing investors and then approach them with full preparation.
You may lack Managerial Experience
The investor is the person who is taking a big risk by putting his money in your company. So, investors take their time to think about your business, demand paperwork of plans, and decide if your business is work taking the risk.
This includes factors like your managerial experience. Managerial Experience can be vital for the survival of the business and since it the investor’s money that is on the line, your bad decisions will cost the investor a lot.
Therefore, the investors look for not only managerial experience but also relevant managerial experience. Why? Because the more experienced person with the plan, the lesser chances of mistakes, and this, in turn, increases the confidence level of the investor.
Having said the above, there is still some silver lining. Some investors may choose to go with their gut feelings and the passion and determination they see in the young graduate who wishes to startup.
Still, it is advisable to go to an investor with full confidence and preparation. Make plans about the future of the business, after you have the money. Plan about:
- Launching the product,
- Marketing of the business,
- Employees and workers,
- Investor relations and their returns
You are asking too much or too little
Investors usually deal with several business plans daily and they have up to date knowledge of the markets they have invested in. So, they know the capital requirements, if someone would want to start a business in a particular segment of the market.
Goin to an investor with a plan that asks for either too much money or too little money and the investor will begin to doubt your ability to comprehend the totality of your startup plan.
Resistance to Change
Openness to change and flexibility is a trait of management that can become a key player in the survival or success of a business. Therefore, investors are keen to see if you have what it takes to run a successful business. They want to invest in a person who is open-minded and flexible even if the plan is outstanding.
As a rule of thumb, every business must be ready to bring changes in the ideas or strategies according to the changing environment of the business. Investors wish to see this trait in the entrepreneur as rigidity in a business is often linked to failure in the business world.
Irrelevant Business Plan and Financial Models
As briefly discussed above a good business plan and supporting financial models and statements. Along with other relevant information are necessary at the time of a meeting with investors to invest in your startups. An investor look for a foolproof strategy for the proposed business.
This is not just limited to correct estimations of the essential resources, well-managed manpower but the most critical part is the knowledge of the target market and the ways to reach out to the target audience. If you cannot answer this in detail then you are most likely to fail and the investor will not invest in your idea.
Lack of Trust in the New Venture
In a new start-up, there are always doubts about success which sometimes creeps into the minds of the investor. And they begin to question the viability of the business. Even if the entrepreneur has a solid business plan. Simple words from the investor to the entrepreneur like “I don’t trust your product” can prove devastating to the entrepreneur as in his understanding the investor is far more experienced.
A loss of trust can also occur due to reasons such as the investor may doubt that the entrepreneur is hiding factual data from the investor. And since this has happened in the world all too many times. It is advisable not to hide any information from the investor to maintain a healthy and trustworthy working relationship.
Lack of Competence or Leadership Qualities
Lack of leadership quality and competence means that the entrepreneur is unlikely to be able to manage his team and take the business towards success. It is your responsibility to build a good reputation in the eyes of the investor. After all, you need the money so, you need to show him that he will not lose his money.
We recommend that in your dealings with the investor, remain focused and always present reliable information to the investor. Reliable information is true, well-researched, relevant, and on a timely basis.
Fail to Maximize the Benefits of small Startup
Investors tend to test the focus and determination of an entrepreneur by first giving small portions of the investment capital. To see if the entrepreneur is capable of using the money efficiently. And that the marketing campaign run by the business is capable of reaping out the benefits of full-fledged production capacity.
Entrepreneurs usually don’t take this initial investment as a test and expense out this money without proper consideration. Hence the investor loses trust in the business.
It is recommendable to utilize the funds with the utmost care. Also, try to improve the product in this phase according to the customer’s feedback.
Your Product will fail to find customers
In the end, the investor may not find investment in your product as a viable opportunity. Because he may form an opinion that your product will not be able to find enough customers. The investor may think that your product or service is not much popular in the market. And that the customers won’t purchase in such a quantity, as required by the business to sustain.
Let’s conclude this article if you consider these points while approaching` investors to invest in your startups. It will not only increase your credibility but also you will have a greater chance of securing funding. Oak Business Consultant is specialized in these matters. We help startups for building a strong financial model and business plan along with Pitch Deck. Which really helps them to get investment. Visit our website to consult with us for free before approaching investors.