By Miracle Nwankwo
Every business whether startups or not are in dire need of business angels (Investors). These business angels will not just keep running to you because you need them badly, but they also want to know what you have to offer and what you will be bringing to the table. Before a prospective investor can freely and without fear invest in your business, there are red flags they always look out for, so as to avoid the possible pitfalls that may arise from investing in the wrong business.
Below are 6 genuine reasons why you never attract a potential Investor to your business.
- You are a first-time founder with no experience: according to Matt Paulson, founder of Startup Sioux Falls, “Start-up investors are investing in the people behind the companies they invest in as much as they are investing in the companies themselves.” What were you thinking? Starting a business in an industry where you have no experience? Friend, you are going to have a very hard time finding an investor because investors know that a person who is not a great person or do not have business hormones wired in him/her will not succeed even if they have outstanding business ideas. This is connected to the fact that businesses evolve and as time goes on the business model you start with might not be the business model that you end up in, a principle and dynamics investors are fully aware of
- You Have an Unproven Plan: Having a brilliant idea is fantastic, but great ideas are not worth any more than the paper they are printed on. Great business minds can agree that it is about execution, not just the idea. In an article written by David Kleinhandler, Founder and President at Vest Financial Group, he said “No matter what makes up your business plan, investors want to see proven results. At the least, they will want a picture of your real-world earnings before they commit. That means quarterly reports that show both short-term growth and long-term promise. The investment history books are rife with stories of highly promising concepts that ended up losing a fortune.” You have to understand that this is more about substance and not ideas. Yes, you have a great idea but you have to move from having a business idea to beginning a process of execution, at least start small but just make sure you have started. Your inability to provide a proven plan can hinder your chances of attracting a potential investor.
- You have not checked your product or idea with your customer. Most times, entrepreneurs just want to hit the ground and run. They rarely carry out a proper ground check on their idea or product with their potential customers or consumers before setting out. So how can you thrive in a competitive market place where one product can have multiple manufacturers. Finding out what your customer or consumer thinks about your product or idea is very important before you set out in search for investors. Speaking about customer’s feedback, Paul Judge, Founder and CTO / Purewire (Acquired by Barracuda) said; “It’s become so sexy to pitch to investors nowadays that people forget to first go talk to customers. I have people pitch to me, and when I ask what customers think about this, they tell me they don’t know. So why are you talking to investors right now?” Investors want to know that your business idea will satisfy the need of your targeted demographic. They want to know that you are either creating something new or have come up with a unique business model that outshines your competition and is able to cover up their lapses and above all meet your customer’s requirement.
- Your startup probably cost much more than the investor is willing to let go: Investors are often people who have had a firsthand experience of the business you are about to venture into and probably know about many other businesses too, so they definitely have an idea of the financial implications that accompany your trade. Investors normally come with huge experience of your industry and so they have a clear idea about the fund requirements for your business startup. Moreover, they already have invested in other ventures or have gone through many proposals. Figuring out the value of a startup is always a challenge for many entrepreneurs , as a matter of fact Marty Zwilling, CEO & Founder of Startup Professionals, Inc, sheds more light on this: “Some entrepreneurs try to start with a huge number, hoping they can negotiate and close on a smaller one, while others understate their requirements, in hopes of getting their foot in the door with an investor. Neither of these strategies is a good one, as both are likely to damage your credibility with potential investors, even before they look hard at your plan.” Therefore, value should be based on past accomplishments and the company’s potential. If a potential investor feels that a startup is being assessed at a value that is too expensive, he is definitely going to look for another investment opportunity. This is why it is preferable to have meticulous details about every facet of investment backed up by breakup of the cost. “The days are gone, if they ever existed, when you could present an idea and a vision, and have investors throw money at you. Now you have to do your homework. Get busy, and have fun,” says Marty Zwilling.
- The Prospective investor has not been satisfied with your commitment: Every serious investor wants to see that the founders are enthusiastic with their business and are giving 100 percent dedication to the company before they jump in. “I always look first at the people, and that covers from the customers to the entrepreneur to the team. Second is the product, because when you start a business, it’s a hunch, it’s a guess, and you have to go out and find out if people really want it or are you just a solution in search of a problem,” Gary Sprirer, CEO / Question Mine.
Business investors have the likelihood of measuring the success of company with how serious the owners are. It has been observed that investors pay more attention to entrepreneurs who run full-time on their business. Once a prospective investor is satisfied with the entrepreneur’s commitment and dedication, they will be willing to give their all, to the success of such business.
A business idea can be compared to a fetus in the belly of a woman, the beauty of the fetus cannot be seen until it is brought forth to the world after a period of pain. As an upcoming entrepreneur whose desire is to make good profit, you have to make conscious effort surrounded by hard work in order to attract your potential investors.