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Pitfalls Preventing Investors from Investing in Your Startup

On each of the passing days probably thousands of innovative minds come up with exclusive ideas to begin a new venture. But how many of those individuals do actually taste the fruit of success? Maybe only a handful. Yes we do hear and read the different success stories of various startups such as the Uber or Paytm which acts as source of inspiration or a hope of light for the budding entrepreneurs.

However, commencing a new business is no mere a cakewalk even if you have gathered much information about the current market scenario. Believe it you need a substantial financial and arranging one is clearly a daunting task.

If at all you are planning to take a loan, the hardest thing is to convince the banking person and explain him your idea to secure a loan. Similarly, the investors or the venture capital will not invest in your business until or unless he is extremely sure about your future success.

Most people are of the view that investing money is kind of gambling because the future of ROI (Return on Investment) is uncertain. As such the investor or the venture capitalist judge the startup in a number of factors and then take the decision on whether it is appropriate to take the risk or not.

According to a data released by the Go-Globe with regard to success or failure of startup says that 80% of startups are self-funded whereas mere only one percent is funded by the venture capitalists. This evidently shows that very few investors actually trust on new ventures.

Another reason that prevents investors from putting money into your startup is probably the statistical data says that about 50% of the startups fail to establish its ground within the first four years of inception.

1. Incompetence or Lack of Leadership Qualities

According to the survey, it has been found that at least 46% of the startups cannot succeed in their venture because of their incompetence or lack of the leadership skills. It is you who have to build the trust within the investor or the venture capitalist by proving your capability to lead the team.

It is through this quality only that you can convince them and assure that they will not lose their money at the end of the day. However, if you fail to present a future picture of your business, believe it they may not show interest in further interaction, forget about investment.

Try to be honest in your approach, keeping aside all your ego. Don’t be over exaggerative and always go after conducting a thorough research of the market.

2. Loss of Trust in the New Venture

The investment of money is purely based on the trust factor. But the reality is that most of the investors do not trust the new entrepreneurs even if they have a sound business plan. This is the corridor of uncertainly where the entrepreneur is not himself sure how will he perform within the next few months or year.

The angel investor might feel that the startup will not get enough customers on the board to begin the fresh innings. Remember they are experienced professionals and they know the market circumstance better than you do. The loss of trust can also arrive because at times they may disappoint you by saying that they don’t believe in your product. They will first have a look at the customer response after the launch of your product and services.

Lastly, the trust factor also declines when the entrepreneur conceals information about his business and tries to employ unfair practices.

3. You do not have the Relevant Managerial Experience

When you are planning to launch a startup of course, you do not have the relevant experience of the field. And this could prove to be a major obstacle when approaching the investors to fund your business. This will be the most challenging point to prove that even if you don’t have the experience, you can still manage your business and anchor your ship well in the sea of unknown opportunities.

The investors and the venture capitalists are very smart. They want to check the track record of the company and go through its background before they can offer any financial aid. The inexperience of the team can also pose difficulties in convincing them in your favor.

Experience here does not mean only managing your business but also how well you can launch the marketing campaign so as to sell your products.

4. Disapproving the Business Plan or Model

It is a fact whenever you approach someone requesting him to fund your business, you have go with a full proof strategy. Now you have to sit down with a cup of coffee may be and explain them your business model. And the next thing you get is a sheer rejection. When asked for an explanation, the reply is your business model or plan is not unique and it does not have the substantial weight to hold out in the tough competition.

The business plan includes everything right from arranging the important resources, management of manpower and also taking vital decisions at the right time. However, the main point is finding out who the target audiences are and how you are going to reach them.

5. Your Approach to Investors is not correct

One of the common mistakes that new entrepreneurs commit is cold calling the investors. This isn’t going to help your cause any way. Whether it is an angel investor, bank or venture capitalist, they receive hundreds of proposals from all parts where plead is for granting some financial assistance.

But it is unfortunate that most of these requests remain unattended or perhaps such emails are deleted without even looking into them. However, if you don’t want to ride in the same boat, then it is better to approach them in a different manner. The best possible way is to send them your proposals that are well backed by thorough referrals or strong recommendations, specifically from professionals whom they trust and who can give assurance on your behalf.

6. Choice of a Wrong Investor

Just as every business firm or company has a targeted customer, similarly, it is equally crucial to come across the right investor. Every investor or the venture capitalist does not have expertise in the same area of your business. So, when you finally send the request for the investment, you might get the answer that, “Sorry mate, I’m not the right investor you are looking for.”

For instance, if you are planning to launch a new online apparel store, you cannot approach an investor who has a thorough knowledge on real estate sector.

7. Not Maximizing the Benefits of Lean Startup

Now this is very important concept to understand. What do you mean by lean startup? This is a financial aid which the investors probably offer to the business owners so that they can launch a marketing campaign to advertise their products.

But the entrepreneurs have to be smart and intelligent in utilizing the money wisely and maximize the gains from it. The investors also want that their money is being used properly and efficiently. Ultimately, their only purpose of providing the funds is gaining profit.

8. Maintaining a Stubborn Attitude and Egoistic

Whether you are starting a new venture or an experienced entrepreneur who has a billion dollar company, the business rule of thumb states you need to be flexible in your ideas. You need to develop an open mind and build a forum where everyone can pour in their ideas.

Maintaining a stubborn attitude will land your startup into an area of troubles. It is recommended to pay heed to every advice but the ultimate decision is yours. Don’t let your ego rule over your business. Take criticism or rejection with welcoming hands. Think deeply as to what went wrong how you need to rectify it. Be always polite and don’t get offended if when the investor does not does not listen to you.

9. Asking for Inappropriate Funds

This is one essential area where you need to exhibit your smartness, expertise and farsightedness. This can be explained through an example. You decided to launch a startup and you request the investor to offer you a financial aid of $10 million. But when the investor listens to your business proposal, he finds that the money you are asking for entering into that particular industry is too much as this business can be commenced with a capital investment of $5 million.

Therefore, here you are showing your lack of experience which will have a negative impact on the investor that you don’t have any knowledge about the existing marketing.

10. Your Product is not Customer Centric

Lastly investors may not be interested in funding your startup if they draw the conclusion that your product is not customer centric. They may form a presumption that customers will not buy your product or avail your services when you come into the market.

Conclusion

Starting a new venture is a difficult task because one of the toughest part is asking and requesting the angel investors and venture capitalists to invest in your business. However, if you can properly convince them and are fortunate enough to show the bright side of your business, you never know what might lie ahead.

It’s not that the investors do not trust in the startups at all; obviously they do, but you need to approach them in an appropriate manner. You need to make them believe that their money would receive the best return on investment.

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Pitfalls Preventing Investors from Investing in Your Startup
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