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7 reasons why investors won’t back your startup

No, no, no!

Toddlers expect to hear that, but when you’re a grown adult with an idea for “the next big thing” and investor after investor tells you no, it’s not only painful, it can ruin your life plans.

With my background in investing and knowing many in the field, let me give you a short list of red flags investors spot that cause them to usher you politely to the door.

  1. Your social media profile. If you’re a job applicant today you need to expect that your prospective employer will be looking you up on social media. Investors do the same thing. If you rant and rave on social media, or demonstrate other inappropriate or risky behavior, it will be a blot on your name when you start asking people for money.
  2. You’ve failed ugly in the past. All entrepreneurs have failures in their past, but a lot can be learned by how you handle failure. If you leave a trail of enraged employees, vendors, and investors in your wake, folks won’t want to sign on to your next project. Not only do you have to “know when to fold ’em,” you need to know how to fold ’em with integrity.
  3. Failing to articulate why you and not someone else. Investors hear a lot of pitches so unless they know you from a previous success, you’re just another face walking through the door. What special sauce do you have that the next guy with a similar idea lacks? It could be your experience, a potential patent, or anything else that makes you unique in the market.
  4. Not knowing how you’re going to get customers. The saying goes that if you build a better mousetrap, the world will beat a path to your door. Unfortunately, it just isn’t true. You need to know how you’re going to reach the people who want a better mousetrap – most of us are fine with our old mousetraps.
  5. Unrealistic expectations in sales and costs. It’s exciting to have a great business idea and that excitement often morphs into unrealistic expectations. Just like a home remodeling project, everything is going to cost more and take longer than planned. But unlike a home remodeling project, you have the added pressure of making sales and they will come in more slowly than expected. Be ready to demonstrate that you understand this and are presenting realistic projections.
  6. Not knowing what’s next. I wrote on this specific topic earlier. A successful chess player always sees several moves ahead. If you don’t know what the second phase of your company’s development is, there’s no reason for investors to back it. If you can’t chart a path forward, by definition your plan has no potential.
  7. Lack of management perspective. The world is full of idea people who want full control or final say. Investors are practical people – they need to know that individuals with strong management skills will be leading the way. Your excitement won’t fund the project.

Before you go knocking on doors, try to put yourself in the investors’ position. Would you fund yourself? What are your negatives? It’s true to say that investors back people more than specific business ideas. If you can’t fix your negatives, it might be time to find a partner who has proven strengths in the areas where you are weak.

 

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