Today’s great ideas are tomorrow’s winning businesses. Any idea executed brilliantly and with proper investment is likely to result in business success. But why do so many start-ups fail to attract investors in spite of the brilliant and promising ideas at the core of their business? Why do investors hesitate to put their money into some start-ups? Investors choose where to invest their money, and once we know why and how they invest, then we can understand how to convince them to invest in our businesses.
Let us discuss some of the critical factors that prevent investors from putting their money in any start-up below:
1. Absence of Leadership Qualities
This can also be referred to as the lack of leadership qualities. Investors want to make sure that they don’t lose their money through a company that may have a great business model but no efficient and skilled business leader to make it successful. When requesting investment from investors, you need to offer a clear prospect and detailed plan of how you are going to achieve set goals.
2. Approaching the Wrong Investors
Every business has a target customer base, right? And by the same token, every business has a target investor. Not all customers are interested in every product in the market. Similarly, not all investors are interested in your business. Investors put their money into businesses that they understand and know, like the palm of their hand.
So, targeting an investor who has no interest in your business will drain your energy and cause you unnecessary frustration. When you are seeking potential investors for your computer software start-up, don’t approach someone focused on investing in real estate business.
3. Lack of Trustworthiness
An investor puts his money on a venture purely on the basis of the credibility and trustworthiness of the business and its owner. This is why, besides having a sound business plan with clear objectives, you will need to demonstrate integrity in terms of the security of the investor’s money and how the fund is going to be invested to give results as per business plan.
If an investor has a feeling that the start-up may not have enough customers to fulfil its financial liabilities or if it finds that the business is hiding some information, it may further push the trust of the investors down. Total transparency and establishing faith in the business brand are crucial factors for finding favourable investors.
4. The lack of Business Management experience
You may have a great business idea backed by a sound business plan and solid trustworthiness based on your background, but you have zero experience in managing a business. This is a serious reason for an investor to be reluctant to put resources into your business. An investor cannot put his money just to allow you to launch a trial and error business. Uncertainty is the single biggest turn-off factor for any investor and lack of managerial experience is synonymous to that.
5. Poor Business Model
You may have a great business idea, efficient, competent and experienced professionals as leaders, the great stamp of trust and everything that makes a company look promising. But what about your business strategy and business model? Are they sound enough to take on the market competition and challenges for business growth? Well, this is what investors are most interested in.
In most cases, a business model is what makes an investor think twice and even take a backward step from investing in a start-up. After all, your business model and strategy will dictate how your business and products will be able to withstand competition and become victorious.
6. Make Sure Your Product Solves a Customer Problem
Will an investor put money in a product that is outdated and has no use? No! No investor should be made to read through time-wasting proposals. Be clear on what problem your product or service solves. Most investors receive hundreds of emails with requests to put money into varied businesses, what makes yours stand out? Or should they coldly just let your email pass.
To attract or fetch investment, your product must be thoroughly customer-centric. It not only has to solve a problem but has to deliver some competitive value in comparison to similar products in the market.
7. Unrealistic Proposal for Funds
Investors normally come with huge experience of your industry and so they have a clear idea about the fund requirements for your business start-up. Moreover, they already have invested in other ventures or have gone through many proposals. Naturally, they have an idea of possible costings for a project. So, any proposal claiming a lofty and unrealistic amount will only face rejection.
This is why it would be wise to be meticulous about your estimation of the required funding and calculation of various cost factors. Have meticulous details about every facet of investment backed up by the cost breakdown. Only when you can convince them with correct estimates can investors take interest in discussing the matter further.
Without proper and detailed preparation, it would be foolish to approach investors for your business. Most investors receive hundreds of emails and a similar number of approaches through other means. This is why you need to send them well thought out, detailed proposals backed by strong recommendations and referrals.
Obviously, finding an investor for a new business is not an easy task, considering the huge competition that businesses need to deal with. But, if your business idea is unique and you fill all those requirements correctly as mentioned above, finding investors may not be as tough as it sounds.
Agnes Chikukwa Hove, Brief Profile
Agnes finds fulfilment in being a Financial Wellness Coach. She coaches individuals, couples and organisations on effective personal financial management, and has effectively done so for the past 8 years. Agnes is a seasoned strategist who is currently the Chief Executive Officer of Sequor Consulting a Pan-African SME Development, Consulting and Advisory organization. She is also the Treasurer at African Women in Agriculture (AWiA) a women’s empowerment organization. She possesses a Master of Science (MSc) Degree in Strategic Management, a Business Management (BBA) Degree and a Diploma in Nursing.
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