Every investor wants to bet on a winning horse. I mean what’s the point in losing money on purpose? But that’s the risk taken on a gamble. And the same can be said about investing in startups.
Over the past month I’ve been putting together pitch decks for my next startup, a free web-hosting company. This got me thinking about the hundreds of startup founders who have approached me and some of the things they did that really ticked me off. (I've invested in 16 different startups over the past four to five years.)
No matter what stage your startup is in, you’re probably going to need some investment dollars. So to save everyone a lot of time, here are 25 reasons I personally would not invest in a startup. Review and address these points for smoother sailing when trying to secure funding from an investor like me and others:
1. Proof of potential success is missing.
There's no evidence that there's interest in your startup or that it has some traction. Have you sold anything yet? Have you run a successful Kickstarter campaign? Have you launched a startup before? Passing those tests would prove to me that you have what it takes to get this startup off the ground.
Show me that your business is something worth my putting my hard-earned cash into and that this investment will work hard for me as your company starts to have success.
2. I don’t trust you.
I stalk every company that I personally invest in. I typically invest in people. You could walk into my office and pitch me one heck of a product. Yet I’m not sold on you as a person, so forget about my investing in your company.
If I can’t trust your character, judgment or leadership skills, then let’s not waste each other’s time.
3. You have an inexperienced team.
Members of your team seem to lack the experience needed to operate a startup.
Let’s say that I like you and your idea but not your team. Don’t expect an investment from me. I need to be sure that members of your team have the qualifications and discipline to complete tasks, meet deadlines and follow through on objectives.
4. Members of your team don’t work well together.
The co-founders or team members of your startup are constantly bickering. So I’m going to become uneasy about your startup. I don’t want to risk an investment in a setup if the colleagues can’t get along. Does everyone get along on your team?
5. Don’t keep things from me.
You're keeping every piece of information from me. I’m not asking you to reveal every little secret regarding your startup. But if I’m investing in your company, I have to at least know the basics of what makes your startup tick.
Investors want to know everything about your startup. Don’t worry: I won't steal your idea. I'm too busy.
6. You don’t have a business model or plan.
You have failed to tell me how and where you expect to take your startup in the next couple of years, though you indicated that there’s interest in your product, That’s why creating a business plan is such an important piece of the puzzle.
If I’m not impressed with your business plan, then I won't invest in your startup. Cayenne Consulting explains common errors in business plans.
7. Evidence that the startup will earn money is scant.
There are no preorders or not many signups for your product or service. So I won't be interested in your company. If you can’t prove that people are willing to pay for your service, then why should I, as an investor, give you money?
8. I don't believe you can build your product.
A great idea is one thing. Making it a reality is another. You haven't convinced me that your product can actually function. I personally need to see some sort of working prototype. I'd like to also see a few customers using your product.
9. Your company is not the first to enter the market or unique.
I typically don’t invest in startups that are not trying to create something new or that have not come up with a different business model. You must have something different or unique beyond what the competition has. Perhaps create a new idea from an old business model.
10. The founder or CEO is uncoachable.
You're not willing to listen to advice or suggestions and become defensive when I criticize an element of your business. Thus I can’t work with you.
One time when several founders came to pitch me, I made one suggestion and they became offended. Some even went so far as to blog that I didn’t know anything. Their company is out of business now.
11. Your startup costs too much.
You may think your new company is worth $10 million. But I believe that it’s worth only one-tenth of that.
Figuring out the value of your startup can be a challenge. The value should be based on past accomplishments and the company's potential. If I feel that a startup is being assessed at a value that's too expensive, I’m going to look for another investment opportunity.
12. You handle rejection poorly.
You have come across like those entrepreneurs who gripe and moan about how unfair life is. Sure you'll be rejected by investors. And that’s part of the process. But handle that rejection properly.
Identify what went wrong and make the proper adjustments. What happens after the pitch and rejection says a lot about an entrepreneur. Investors are watching, even after they’ve said no.
13. You cold-called me.
You sent your plan to every angel investor or venture capitalist for whom you could find contact information. Your request is just going to be tossed into the trash. Instead approach investors through referrals or recommendations from people they trust and who can vouch for you.
I only invest in startups when the founders are referred to me or they go above and beyond the call of duty to get my attention.
14. I’m not the right investor.
Your company is not operating in my area of expertise. Just like a doctor might have a specialty, so do investors. Do some research ahead of time and locate the investors who are involved in your field.
15. You don’t focus.
You're trying to launch every single product idea that you have. Instead stay on track and focus on creating the best product that you can release.
You’re not going to please every customer. But you do have to please the right customers or the situation will come back to burn you -- perhaps in an online mention.
16. You’re way too early for my money.
You wanted to develop an idea that could revolutionize your business niche. But your concept is too far out. I’m going to stay away until there’s been more research, your protect has traction with customers or other investors show interest. Investors typically want to stick with proven technology and industries.
17. Your company's technology is already forgotten.
Honestly, in the past six months I've received pitches concerning VHS tapes. Business trends, especially in the technology, move extremely fast. Why should I risk my money supporting a startup that makes VHS tapes more efficient, even if in 2012 roughly 13 million blank cassettes and VHS tapes were sold in America?
18. You’re too slow to launch a product.
Your company is moving too slowly. Whether it’s because you lack confidence or are a perfectionist, the longer it takes to launch your product, the longer it takes for me to see a return. Remember, there’s nothing wrong with releasing a version 1.0 and making the appropriate adjustments at time goes on.
19. You lack a marketing strategy.
Your startup is poised to begin selling a product but lacks a plan for how to boost sales and gain a competitive advantage. I, along with thousands of other investors, can tear your startup apart in seconds. Have you set marketing goals? How will you promote your product? These are crucial marketing questions that need to be addressed before you come knocking on my door.
20. What problem were you trying to solve again?
When you founded your startup, you did it with the intention of solving a problem. But you, the entrepreneur, have shifted your focus from contemplating an idea to running an actual business, you have lost sight of the original problem. I need to confirm that you’re still addressing a problem that exists and your solution is feasible,
21. You don't understand the industry.
As an entrepreneur, you don't seem to be familiar with the business sector involved so I'm not interested in investing in your startup. If you had experience in a related area, that would at least inform me that you have some knowledge relevant to potential customers or an inkling about how to enhance the industry.
Break down the actual numbers that concern your particular niche of the industry and know them solid. If you don’t have those figures, I’ll assume the worst or even more awful, I’ll come up with my own calculations.
22. You don't understand the word "lean."
You're spending money on things like branded hats, key chains or coffee mugs. Why would I want to invest your startup? An investment is supposed to go a long way toward getting a product ready for launch. That means not spending a ton of money on swag. A couple of T-shirts for promotional purposes is fine, but don’t go on a spending spree.
Also, don’t be paying yourself a big fat salary just because you’re the boss. A study by Compass indicated that 66 percent of Silicon Valley startup founders using its benchmarking tool gave themselves salaries lower than $75,000. The average around the world is $32,000 to $72,000, according to Compass. How much are you paying yourself?
23. You're not concerned about tomorrow.
Your startup seems to be based only on a current trend. You can’t expect a startup to have longevity this way. I know that we can’t predict the future, but I want to invest in startups whose owners are thinking about the future, not just contemporary trends.
24. There aren't any other investors.
I'm not finding evidence that others have invested in your business, even a couple of thousand dollars. Unless I’m a fervent believer in your startup, I need to see interest from other investors. The presence of other investments gives me an indication that someone else sees potential in your startup and that other people are support your vision. Having a couple of investors is good as they will help promote your business.
25. You’re oblivious.
Many of above issues apply to you and you haven't realized it. That's a serious problem. I can’t stand dealing with people who can't see flaws and are clueless about trying to overcome them. Remember, no one is perfect. Accept your weaknesses and work on correcting them.
Let these reasons that I won’t invest in certain startups serve as tips for every startup founder to remember when pitching an investor.
What other tips would you give entrepreneurs who are pitching startups?