Investors consider startup financing to be risky as the probability of success is always low. It is more like gambling and investors always want to bet on a winning horse. While entrepreneurs believe that their startups will surely succeed, it’s the investor’s duty to determine if investing on a particular startup would be worth.
Investors look for how a startup can gain the competitive advantage and be ahead of the competitors. They don’t want to lose their money by investing in something that doesn’t seem to be sustainable, unique and attractive.
Below I have outlined 7 reasons that might discourage investors to invest in your startup:
Claiming that you have No Competitors
Insisting that you have no competitors will most likely abort any chances of funding from that investor. This will create a bad image of your startup and the investors will be forced to assume that there is actually no market for your product or service or you haven’t studied the market well. Even if your startup doesn’t have direct competitors, indirectly some competitors do exist.
Your Company is Not Unique
Investors love to invest on companies that wish to create something new or have a different business model. Your idea must be unique and a level beyond what the competition has. But do not claim the first mover advantage as hearing this will turn off most of your investors. First mover advantage is sustainable only by big enterprises or founders with extensive financial wealth or resources.
Unproven Business Model or Plan
If investors are not impressed with your business model, they will not invest in your company. You need to present a business plan mentioning how do you plan to make money and do you have proof of that on a small scale. Also, investors want to know where you expect to take your startup in the next few years. Without a workable business model, you will not be able to raise money.
You have an Inexperienced Team
Investors need to be sure that the startup they going to invest in has an experienced team and have the necessary qualifications and discipline to complete tasks and meet deadlines. You must evaluate certain key areas of your team:
- How strong is your technical team?
- How effective is your financial team?
- Do you have the right sales and marketing resources?
Investors expect the leader of a startup and his team to be coachable, well-organized and structured. The leader needs to find the right balance between ego and honesty and should maintain the right character and integrity to excite the investors.
Investors want to see that a real market for your product or service exists. It is better to have a handful of customers in the pipeline to showcase that you have a strong market value. If you will be able to prove that there is a strong customer base present, your chances of getting funded would be much higher.
Absence of In-depth Domain Expertise
Startup founders need to have a deep understanding and knowledge in the area or industry in which they want to raise money. Just having an idea will not do any good. You should know what you are talking about. You must know your area, customers, players, future of the industry and market, and how to get ahead. If you lack this knowledge, there are very meagre chances of raising money.
No Clear Marketing Strategy
You are ready with a product but do not have a plan in place to enhance sales and gain a competitive advantage, then you don’t stand any chance of getting investments. Investors prefer startups with appropriate marketing goals and promotion plans.
It’s most advantageous to highlight your best competitive features and state your determination to continuously improve your products and processes to attract investors. If you have the confidence to win and out-distance your competitors, no one can stop you from growing.