Review these 13 common reasons why investors reject startup pitches to improve your chances
As an investor, hearing a startup pitch can be an exciting experience. However, not all pitches succeed in capturing investor interest. We’ve compiled a list of 13 common reasons why investors reject startup pitches. understanding these can significantly improve your chances of securing funding. From lack of market research to an unclear value proposition, each reason sheds light on essential elements that can make or break a pitch.
Investors look for innovative ideas with high potential for growth, strong execution strategies, and a clear understanding of market dynamics. This article will delve into the core reasons that often lead to rejection, providing valuable insights for entrepreneurs looking to fine-tune their pitch.
Essentially, not every startup needs to go out there to look for funding. Some startups do well on their own by embracing bootstrapping, growth hacking, and lean startup methodologies.
However, for those who seek seed rounds, below are some reasons why investors reject startup pitches:
1. No information about the size of the market
Investors want to know that the market size makes financial and economic sense. A huge market implies the possibility of a significant return on investment to the tune of 10x or more.
The size of the market demonstrates the level of scalability of a startup. Highly scalable investments are attractive to investors. Sometimes proving the entire market size might be difficult in the early startup stages. However, by evaluating the habits of your current customer base and that of your competitors, it’s easier to estimate the market size as a whole.
2. No team
Reid Hoffman once said:
“No matter how brilliant your mind or strategy, if you are playing a solo game, you’ll always lose out to a team.”
It can be hard to attract investments from potential investors if you don’t have a team in place.
Investors require certain values from your team from your team. The team in your startup will define the culture, future, and decisions that will push your company ahead. Get a technical, business-oriented, complementary, and experienced team to get investor’s attention.
3. No product information
To help investors make more informed and more confident decisions, you should provide them with valuable metrics and insights about your minimum viable product (MVP) or working prototype. This is most important when your MVP is at its very early stages.
“No growth hack, brilliant marketing idea, or sales team can save you long term if you don’t have a sufficiently good product.” ~ Sam Altman
When you don’t provide the metrics that give insight into your working prototype you allow the investors to invest based on their previous experiences in the space. Inform them of the traction, and specifics like details of the users, the current speed of growth, projected adoption in the coming months, etc.
“Make your product easier to buy than your competition, or you will find your customers buying from them, not you.” ~ Mark Cuban
4. The wrong valuation
Kevin Harrington describes this best:
“Nothing turns off an investor more than when an entrepreneur comes in with a ridiculous valuation.”
This comment shows how the valuation of your startup might be turning off investors. When you approach investors, make sure you value your startup right.
If you set the valuation too high, the investors will consider it a high-risk investment. To manage this risk, they want to own as much of your company as possible to protect themselves against future losses, push down that valuation, and become major decision-makers.In light of this, you need all the help you can get, therefore, a Private equity CRM software can support this entire process by organizing investor interactions and tracking deal progress efficiently. Keep in mind, if you set your valuation too low, you could sell yourself and your company short, which is why you have to find a balance.
Both situations might affect your future rounds negatively – especially the exaggerated valuation. Future investors will turn their backs on you if you have not lived up to the hype placed in your seed round valuation.
5. No proof of potential success
Let’s assume your investors have not found evidence that your startup could be or is a success. This is a bad first impression to put up. You can demonstrate proof of potential success in many ways, including the number of sales to date or the results of a Kickstarter campaign you ran.
“A board member of mine used to say sales fix everything in a startup, and that is really true.” ~ Sam Altman
If you or anyone in your team has successfully launched a startup before, this is a plus for your startup. It signals to the investors that your startup has the potential for success and will be worth their hard-earned money.
“Don’t optimize for conversion, optimize for revenue.” ~ Neil Patel
Most of the time, the companies that come to Pressfarm for PR campaigns are newly launched. We encourage them to rake in some sales for their bottom line and as social proof. Facebook and Google advertising are good ways to get sales when you have just launched. Alongside a custom PR campaign from Pressfarm, your social media strategy can take your brand to the next level.
Additionally, we advise that they start working on their PR and SEO campaigns. SEO and public relations are two facets that take some time before you start seeing results. However, if you are using Facebook or Google to advertise, you should be getting some profit and investing in SEO and public relations. Getting customers from all these directions is also credible proof of success potential for your startup.
6. Openness is lacking
When you go to speak to investors but try to keep some information from them, they will become very skeptical about investing. Startup founders think divulging too much information might leave them without an investment or get their ideas stolen.
When you give investors the impression that you’re keeping important information from them, you can cost yourself a good deal. Investors value honesty and integrity. Your level of honesty with them proves how honest you are as an entrepreneur.
7. No business model or plan
Your business model or plan answers one major question: “How will you make money?”
If you don’t have this answer, you won’t convince an investor to put their money into your startup. A startup without a business model or plan doesn’t have direction.
“A business model that hasn’t been tried before is always interesting even if it is likely to fail.” ~ Michael Arrington
While this information could be in the heads of the founders, it must be documented and ready to be provided when needed. Also important to note is that your business model and plan could change depending on changes in the market and metrics from your customers. You need to indicate all of this in your business plan.
8. No uniqueness in the market
Startups that copy and paste ideas without adding value to existing product offers will be turned down in seed rounds.
Offer unique value in your product to convince customers and investors, or you will lose them to your competitors.
Joel Spolsky, the co-founder of Stack Exchange said:
“Nothing works better than just improving your product.”
9. Timing – too early or too late for the market
Perhaps you got into the market way earlier than you should have or too late and people have already forgotten about your product. Both of these scenarios are detrimental to the growth of your company.
“Don’t spend too much time trying to choose the perfect opportunity, that you miss the right opportunity.” ~ Michael Dell
Timing is one of the key elements that spur growth. It is okay to want to revolutionize your business niche. However, if you have not researched enough, your product will have no traction with customers or investors. Investors will prefer to wait until they can be certain there is a market for your product.
10. Lack of focus
Maybe you have so many ideas that you cannot focus on one. Instapaper founder Marco Arment has said before:
“Making a product better often requires removing features.”
Do not get distracted by the need to build many features into your product as this turns investors away. They like to see a team with a focus. What is your startup’s focus on the main idea and by extension the main feature? What business model is your startup focusing on?
11. Marketing strategy is poor
You have spent time developing a product and business plan, but no strategy to get it out there. Investors will tear you down without mercy.
Develop a strategy to get the word out about your product. A marketing strategy works very well in conjunction with a PR strategy.
Reach out to journalists and build media relations long before your product launches. Start spreading the word about your startup early by securing directory listings and using content marketing. These are just a few strategies that could spur your growth and show investors you plan to get your startup known.
12. You are not solving a problem
Maybe you are not building a startup based on solving problems in the market. If this is true for you, then you are not an entrepreneur. Entrepreneurs solve problems and make money while doing it.
“Fall in love with the problem, not the solution.” ~ Uri Levine
Some startups start by providing solutions to problems but eventually lose sight of the problem and turn the solutions into businesses. The only way to remain relevant in business is to keep providing solutions.
13. Failure to adopt the lean concept
Perhaps the problem is that you are spending money on too many things that don’t matter. You are overpaying yourself because you are the CEO. You are hiring faster than you are growing. In summary, you are burning through money so fast that it doesn’t make economic sense.
“Don’t be in a rush to get big. Be in a rush to have a great product.” ~ Eric Ries
You have focused on putting out a big company picture by spending large sums on salaries and promotional offers instead of validated learning and product development. This is a huge red flag for investors.
Conclusion
Raising funds for a business might be one of the hardest things you ever have to do as an entrepreneur. For this reason, it makes sense to learn how to pitch your business to investors the right way. To win investors over, you need to avoid making the mistakes above.
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