06 Oct Startup Red Flags: 7 Things Scaring Investors Away from Your Idea
Investors have requirements. To attract an investor who will be investing time and money into your business, you need to be able to meet most, if not all, of those requirements. As the founder or co-founder of a startup, you not only need to meet certain criteria to get the interest of an investor, but you also need to avoid “deal-breakers.” Deal-breakers are the things that will instantly scare potential investors from working with you.
Here are 7 things that will turn most investors sour on the prospect of investing in your business:
A Bad or Non-Existent Plan
Your idea and business will change. Do you have a solid plan for how that change will develop and how your business will grow over the next one, two, and five years? Even the best idea or revolutionary invention could go to waste without a solid plan in place and the right people to execute that plan.
Startup investment is getting harder and harder to secure. Investors are waiting to see what a startup can do rather than worrying about getting in on the ground floor. If you don’t have any traction, your business idea may be too new, or you haven’t accomplished enough yet for a particular investor. Keep grinding, and be able to show potential investors proof that your business will succeed. Remember: the best proof you can show is sales.
No Focus or Commitment
No investor wants to invest in a founder who can’t focus or lacks commitment. A part-time founder can succeed to some extent, but building a startup into a thriving company takes a lot of time and effort. If you are currently a part-time founder, make sure to tell investors how you plan on transitioning and maintaining a living while working on your startup full-time.
Lack of Resources or Underutilizing Current Resources
Entrepreneurs have to be resourceful. Your network and available resources are valuable. If you haven’t developed a network and resources, or aren’t utilizing them properly, it’s a sign that you won’t properly utilize the network and value of an investment and the help of an investor.
If you’re not doing so already, find ways to build your network and gain value from them. You also need to be aware of what tools and resources are available to you, from grants to free tools to conferences in your industry. Research to learn what’s available, and then take advantage of these opportunities.
Passion shouldn’t be the only reason you started your business, but it has to be among the reasons you started your specific business for me to be interested. Every founder should be passionate about the products, services, or overall mission of their business. Otherwise, when more interesting opportunities come your way or when times get tough, what would stop you from giving up or leaving for a different business or job?
Ego without Results
An ego of any type is a red flag for me as an investor, but a sense of confidence and naivety can become a benefit if channeled the right way. If your ego gets in the way of receiving feedback, like the kind given by investors and mentors who know what they’re doing, it will prevent you from making the most of your opportunities to grow. Be confident and open to feedback. Don’t let an inflated ego be the reason your company doesn’t get the funding it needs.
Weak Unique Value
Every startup needs to bring unique value to the market and their customers. If what your company is trying to do isn’t unique, valuable, and/or something that can’t easily be copied or adopted by your competitors, it’s likely that your business model is too risky and not attractive enough to invest in.
Even if your company has a few of the red flags mentioned above, don’t start waving the white flag to surrender just yet. All startups have to beat the odds and persevere through many challenges. The companies and founders that succeed are those that learn and adapt. If your company’s current state represents one (or more) of the above, get to work, correct it, and make sure that it won’t get in your way.
Have questions? Need help? Email Michael@ConsultStraza.com, and I’d be happy to help you overcome your next hurdle.
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