5 Reasons I Will Not Invest in Your Startup
No matter what stage your startup is in, chances are you’re going to need investment funding at some point. As an investor who has built, bought, sold, led, and/or invested in more than 13 companies, I’m often asked how to secure investor funding. Below are the top five reasons I say no to entrepreneurs who knock at my door asking for cash:
1. I don’t trust you.
I like to invest in people. If I can’t trust your character, judgment, or leadership skills, then we won’t be able to work together.
Entrepreneurs think they need money but what they really need is expertise, support, and effort to work with them. This is how I structure my investments. I look for tech entrepreneurs who have the background to build the product but are missing the experience. Then I come in with the money, expertise, and network, and help them transform or bring leverage to their business.
Related Artice: Mentorship: Help that Lasts
2. You haven’t clearly defined the problem you’re solving.
The first and most important thing I ask myself before making an investment is: Do I get it? I don’t invest in anything I don’t understand. Your pitch should tell me what the problem is that you’re solving, why anyone would pay for the solution to this problem, who is already working to solve this problem today (if there is anyone), why you are the right person to solve it, and what is preventing you from solving it. I don’t need the revenue projections in the first conversation.
3. You lack deep domain expertise.
If you’re the first person trying to solve a problem, it may not be a problem worth solving, and you probably haven't done enough research. What I love hearing is, “I’ve worked on this at company X.” That tells me that you’ve spent five years researching this problem and you have the domain knowledge necessary for avoiding landmines.
The entrepreneurs I work with are deeply embedded in their niche or area of expertise. They know the industry, they know the players, they know how to secure investor funding, they’ve done the market research and they know how to get ahead.
Related Article: BPlans | Know Your Industry Before You Start Your Business
4. I’m not confident in your team.
As an investor, I want a return on my capital. I need to be sure that your top-level team is geared for success. Members of your team must have the qualifications and skills necessary to meet deadlines, complete tasks, and follow through on strategic goals and objectives.
Building a strong team is a critical part of entrepreneurship. Plenty of otherwise promising entrepreneurs fail to recognize issues with their team because they’re too trusting, too polite, or too buried in their own work to properly focus on their employees.
5. I’m not the right investor.
If I understand your idea and I’m excited about it, the next thing I ask myself is: Can I personally excel at growing this business? If I’m going to invest $50,000 of my own funds, I want to know that I can generate ten times that amount in the first six months because that will generate a huge return on my capital.
If your company is not operating in my area of expertise or I don’t have a network in your space, I’m not the right investor for you.
Just like a doctor or lawyer may have a specialty, so do professional investors. Take the time to research and locate investors in your field. Once you find them, seek a referral from another investor or entrepreneur who may know how to secure investor funding from that particular individual or firm.
Related Article: Don’t Assume Investors are Your Friends
If you receive investor funding, consider yourself lucky. Entrepreneurs have to jump through hoops to be noticed by a startup investor. But if you check the boxes above, you’ll be one step closer to attracting an investor and partner who believes in what you’re offering.
Hey investors, what turns you away from investing in startups? Comment below.