There are many hurdles that an entrepreneur has to overcome to make their startup successful.
However, before you start justifying why investors should invest in your startup, you should learn and understand what investors think and why they reject the idea of investing in your startup.
Out of ten startups, nine fails. That’s a hard truth and understandable in the current startup ecosystem. Startups are created to test out an idea in the real world. No one knows how an idea will fair, and this explains the high rate of startup failure.
Now, let’s understand it from the perspective of an investor. As much as Startups are risky, investing in one is riskier. In this article, we will discuss the top 5 reasons why investors reject your startup ideas. Let’s get started.
1. Lack of potential in the idea
The number one reason that makes an investor not invest in a startup is the lack of potential in your project. The investor doesn’t see the current idea viable. Also, you should show proof of your success to convince the investor. There is no point asking an investor to invest if you haven’t sold anything yet or haven’t run a successful Kickstarter campaign.
In short, having some success adds value to your proposition and makes investor at least entertain the idea of investing in your startup.
2. Team not up to the mark
A successful project is not only about the idea or your leadership skills. It is also about the team that is working behind it. A stronger team is more likely to bring the project to success, compared to a weak or inexperienced team. The investor knows this, and always look out for any weaknesses in a team. If they find that their team is not up to the mark or lack experience, they will surely reject your startup idea.
The best way to solve this is to be more vigilant and decisive when it comes to team building. Always be open to your team members and solve issues regarding performance and internal conflict. As an entrepreneur, your team is your strongest intangible asset.
3. Approaching investors in a wrong way
Inexperienced entrepreneurs don’t know how to approach an investor. For example, they will do a call cold an investor. By doing this, you are only making sure that your business idea is going to the trash without even being touched.
Even Paul Jones has a very strong opinion on cold calling. He adds, “Well, one of the obvious ones does not cold call investors. You should try to identify investors carefully and not just send around a plan to every investor in the book or everyone you can find from some list of venture capital firms. Instead, you should seek to get referred by another investor or entrepreneur. This is an obvious one, but we still see entrepreneurs who don’t listen.”
4. You lack leadership skills
Leadership skills are vital to the success of any project, leave along startups. Investors are very keen to judge your leadership skills. As you represent your idea, they are heavily interested in what you have to offer. If they see that you lack leadership skills, they will not invest in your startup(even if it is extremely promising).
Other than leadership, they are also interested in your overall character and integrity. If they find everything good, they will surely go forward with the idea of investment. As an entrepreneur, the best way to solve the issue is to have leadership skills. Moreover, try not to oversell yourself. Stick to your basics and try to convey your message honestly and straightforwardly. Investors always like someone who has a simple approach to conveying their ideas and is honest about them.
5. You are uncoachable
Building a company from a startup can teach you a lot of things. It makes you more humble. It comes with success and time. However, inexperienced entrepreneurs do show ego and stubborn behavior.
If an investor finds out that you are not able to take feedback and is rejecting ideas because it comes from another person, he will deem you uncoachable. Many investors follow this rule and walk out if they find the startup owner is not up to their mark.
Today, we went through the top 5 reasons why investors reject your startup idea. If you think that we missed something more important, don’t forget to comment below and let us know.