The startup world is never easy. It comes with a ton of challenges. You may feel like you are walking on a tightrope trying to balance your startup and yourself. Clearly, the obstacles can be overwhelming. For example, raising funds for your startup can be a significant challenge. In this case, investors become your best hope. However, they are also one of the biggest hurdles you may have to face. They are the ones who will fund your startup’s growth. They could be dream-makers or deal-breakers. If they like your idea, then great—you can get the money you need. But they might say no and leave you confused, asking yourself why they rejected your idea. Or maybe they don’t see the potential in you to implement it. Do you know why investors reject startups?
Of course, your first reaction to the rejection could be “how dare they reject my idea? It’s perfect.’ That’s fair because as the creator, you would always want to defend your idea. But rather than getting upset, it would help to understand what investors think and why they reject the idea of investing in your startup.
The perspective of investors
Now, let’s understand it from the perspective of an investor. As much as startup businesses are risky, investing in one is riskier. They want the best of the best, with a higher probability of success. They don’t want to invest in a business that they feel has no potential. So, they turned them down. And that’s why in this article, we will discuss the top reasons why investors reject startups. This will help you understand what makes investors work away from an idea. Learn from these reasons and avoid them at all costs.
1. The business idea isn’t promising
The biggest reason investors reject startups is the business idea itself. Sure, you may think that your business idea is perfect. But investors may notice that it does not have potential and turn down investing in it. Remember that the investor doesn’t see the idea as viable in its current state. In this case, you need to show proof of the potential of the idea to be successful to convince investors that the business is worth investing in.
2. Your business plan is not good enough
Your business plan plays a key role in winning over investors. Not just any business plan. It should be a complete, well-structured plan. Suppose you were unable to express your business idea to the investors properly. If that happens, they will not be interested in your startup idea. It is important to be able to sell future prospects to your investors. If you cannot convince them that you are dedicated to the business and if they cannot understand your plans, they will walk away from your startup. Make sure to prepare an impressive business plan to wow the investors. It should include the structure of the business, the goals you want to achieve, projections, documentation, plans, and sales.
3. Lack of market knowledge
Another major reason why investors reject startups is your lack of knowledge of the market. Just imagine that you are entering the market, but you are clueless about it. You don’t have the necessary details about your customers, nothing about your competitors, regulations, documentation, and other essential information. How do you think you’ll survive then? Of course, you won’t be able to. If an entrepreneur is not familiar enough with market regulations, investors will be disappointed and turn down the idea of investing.
So, how can you avoid this issue? The best solution is to be knowledgeable about the market. Remember to conduct intensive market research before presenting the idea to investors or launching your startup. Your market knowledge demonstrates to investors that you did your research before coming up with the business idea.
4. Your team is not competent enough
Teamwork makes the dream work. You certainly need a great, well experienced team, and that could be a dream to work with. That’s how you can make the dream of success a reality. Starting from your leadership, each employee’s role matters. A strong team is more likely to bring the project to success compared to a weak or inexperienced team. Investors know this, and they consider the team when presented with a business idea.
They prefer experienced and qualified individuals who also have a great portfolio in a team. Such teams stand out to them most because they are more competent and productive. But suppose they learn that the team is not up to the mark or lacks experience? In that case, they will choose not to invest and turn down the idea of investing. On the other hand, keep in mind that practically everyone participating in the company will have an inevitable learning curve with regard to the business idea itself. Potential investors will understand this as they are well aware of such inevitable factors.
So, how can you avoid this happening to your startup? Well, the best way to solve this is to be more vigilant and decisive when you are building your team. Maintain constant communication with the members of your team and work to resolve any problems relating to performance or internal strife. When you’re an entrepreneur, the most valuable intangible asset you have is your team.
5. You are approaching investors in the wrong way
Another reason why investors reject startups is the way they approach investors. Most of the time, inexperienced entrepreneurs are clueless about how to approach investors. An example of this is cold calling investors. It is a big no-no. By doing so, you are not doing any favors to yourself or your business. Instead, you are only making sure that your business idea is going down the drain without even being considered.
So avoid cold-calling investors at all times. A better approach would be to try and figure out the investors carefully. It is way better than just sending around a plan to every investor you can find in the book. Instead, you can look to get referred by another investor or entrepreneur. It would help you get attention and stand out to investors.
5. Poor leadership skills
This point loosely relates to the point we previously made about teamwork. But leadership alone deserves to be discussed separately because it plays a critical role in a business. Of course, a leader is part of the team. But the role of a leader is more than a team player. Leadership is the link that holds the team together. If there are issues in the way that you lead, it can take down the entire team and eventually the business itself.
Your leadership skills are vital to the success of the project. Since investors know this, they are very keen to judge your leadership skills. As the leader, you represent the business idea. If they notice that you have poor leadership skills, chances are they will not invest in your startup.
Apart from leadership, investors also observe your overall character and integrity. And if they find all these factors to be in place, they are more likely to go forward with the idea of investment. To increase your chances of getting approval from investors, you should improve your leadership skills. Plus, remember not to oversell yourself. Stick to your basics and try to convey your message straightforwardly and honestly. Investors always prefer entrepreneurs who have a simple approach to presenting their ideas and are genuine about them.
6. You are uncoachable
Another reason why investors reject startups is your attitude. Yes, that plays a big role as well. Let us explain. Building a company from a startup is a huge learning experience. With its challenges and interactions, you learn a lot. Although they can be overwhelming, they also eventually make you humble. Of course, it comes with success and time. On the flip side, inexperienced entrepreneurs may not have this quality. They would show ego and stubborn behavior. Basically, they are completely intolerant of criticism and want things their way. This is a bad look for investors.
Suppose an investor notices that you are unable to take constructive criticism and are rejecting advice and ideas coming from another person. Then the investor will lose interest in the idea of investing in your company. Investors will assume that you are uncoachable. Most investors follow this rule and walk out when they notice the startup owner has the attitude of “my way or no way.”
7. Your marketing techniques are not good
Another major reason why investors reject startups is a poor marketing plan. Some entrepreneurs may assume that a proper business plan, a good product, and a competent team are all it takes to get investors on their side. However, that’s not true. You are missing a key ingredient there. Your marketing plan matters a whole lot too. Don’t forget that. If it’s not up to the mark, investors may reject the idea despite the overall business idea being good.
So, why is marketing that essential? Well, it is a crucial element now more than ever. As you know, your product depends on customers. In today’s day and age, there is a ton of competition in the market. With such a competitive nature in the market, your product needs to be able to stand out. To do that, you have to rely heavily on marketing. But it should be innovative enough to capture the audience’s mindset. It cannot be marketed just for the sake of it. You have to understand the right ways to grab the buyers’ attention through your marketing campaign.
A carefully well-structured marketing plan can increase your product sales and give more value to your brand. When investors see this well-executed marketing strategy, it increases their willingness to invest. This is due to the fact that there is a very high probability of success when it comes to the sale of products.
8. Lack of focus and commitment
Is your startup business your dream? Are you willing to work towards achieving success while overcoming all the challenges that it brings? Are you committed and focused enough to make your startups a success? If it’s a definite yes, no problem. However, if you are unsure, you have to rethink if you are committed and focused enough. That is because if you are not, investors will see right through you and decide your startup is not worth investing in.
You should have a good track record and a laser-focused approach to make your main target come true. Remember that you are the creator. You have to be completely invested in your startup more than anyone else.
9. Your pitch deck is not good
Alright, hear us out here. There is no stone-carved rule about the ideal pitch deck. That’s true. However, that doesn’t mean there are do’s and don’ts. Knowing what works best can help you craft the most effective pitch deck for yourself. At the end of the day, if the pitch deck is not effective enough to get investors to invest in your startup, there is no point in having a pitch deck. Some of the major mistakes include:
Not clearly defining the problem your startup is solving
It is one of the major points that investors look into during your pitch deck. It explains what and whom the business is meant for. This point is what makes investors interested in your undertaking. Plus, it showcases your understanding of the market. But suppose you failed to explain the problem you planned on solving? In that case, investors will conclude that you, as an entrepreneur, don’t know your customers’ needs as well as they do. If they assume so, they will turn down your business idea.
You haven’t considered the risks
Pretending that your business is risk-proof is not a good look. If you try to cover up potential risks from investors, it shows that you are untrustworthy and dishonest. Also, remember that even if you avoid mentioning possible risks and issues that might block your business from implementation, investors will still ask you about them. You must analyze and present them honestly. That way, investors will notice that you are trustworthy to work with and are aware of the possible challenges along the startup journey.
Unorganized pitch deck form
Suppose your structure and formatting are not clear. It could be the text being too long with small font sizes, little to no visual aids, and typos and grammatical mistakes. Structural mistakes will also make the investors feel like there is no flow in the pitch and the business plan as a whole. This type of presentation is going to take you down. It will not get you the investment. Such formatting will make it hard for investors to understand your business. Plus, it will make them not want to read it at all and wish that they were somewhere else rather than listening to your pitch deck.
Asking too much
Yes, you need funding. But remember not to ask too much right off the bat. If you plan on asking for more money, remember to have some success stories prepared to show and base your request on.
10. You have better competitors
Sometimes, your competitors are too strong. That could be another reason why investors reject startups. Investors may see that your startup idea is being done well by someone else in the market. And if they don’t see that you could be a strong enough opponent to the already established competitors, they will turn your business idea down. If you can show that your business has a plan to overtake the competitors, you will have a better chance.
11. Poor Execution Plan
Another reason why investors turn down a startup idea is the poor execution of a plan. Investors may ask you how you plan on achieving your vision and goals. When they do, you must have an impressive and feasible answer to that question. If you are unable to do so, then it will show that you are not sure about how to execute your plan. Your idea may be the next big innovation. But if you still fail to explain how you’re going to achieve your targets, you might lose the investors. To avoid such mishaps, be prepared to explain your next steps and moves to show that you know how to execute your vision going forward.
Wrapping up
Startups are never easy. There are so many challenges that an entrepreneur has to overcome to make their business successful. One such hurdle you have to overcome is getting investors on your side. For that, you have to know what investors like and don’t like about startup business ideas. What exactly makes them reject certain business ideas? Through this post, you got to learn major reasons why investors reject startups.
Now you know what they don’t like. Learning these points must have helped you to understand the reasons for startup rejections. You can also use this information to make necessary changes in your business before presenting it to investors. Avoid these mistakes we mentioned, at all times.