5 Reasons Why Investors Aren’t Funding Your Business

July 8, 2021
Marene Ter

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Have you ever pitched to an investor in an attempt to secure funding, only to be rejected, sometimes without explanation? This happens too frequently. Yet founders and their teams often struggle to find out where they went wrong. 

The first rule of investors is: Never lose money.

Selecting a company to invest in will have to pass their own set of investment criteria that facilitates their decision-making in the opportunity. If you are seeking funding for your company, it would be wise to be aware of the factors that may have contributed to potential investors deciding against investing in your company.

Some investors would provide a sufficient explanation why they did not invest. However, investors come across hundreds, if not thousands of opportunities annually. Providing an explanation to each company takes a great deal of their time. Hence, it is not on their priority list to do so, especially if there are too many issues with the company to enumerate. 

If you didn’t receive feedback regarding your rejection, it may be that the investor thinks it is not worth their time trying to tell you what you need to fix and why the business is not investible. Or it could be that they already tried, but you didn’t seem to get it. 

As such, this would leave you asking yourself why the investor decided not to invest. Here are some of the most common reasons from our investors, which will help you refine your pitch decks and get the funding you need next time.

1) Your product doesn’t have an actual competitive advantage

You might believe that your product will fly and enjoy sustained growth, but your investors are probably thinking otherwise. 

Does your product have a real competitive edge in the market? Are you sure that your product is functional? Is it available on beta mode or a prototype that can prove how viable it is? Is it proprietary in such a way that even if potential competitors come up, it can be defensible? 

Make sure you tick all these boxes to help investors determine that your product is attractive and worth investing in. Keep in mind that investors want consumer-centric products. If your target customers won’t buy it, there’s no reason for them to invest in it. 

2) You lack a solid business model

Anyone can have an idea. Ultimately, it’s the execution that matters.

Do you have a vision of where your business will be in a year, two years, five years, ten years? Do you have a plan in place to get there? Can you show how your company can withstand tough competition in your market?

These are what investors look for right off the bat. It’s not just all about your passion and commitment. They want to understand where you plan to take your company, along with proof that you can make it happen. 

Demonstrate your deep understanding of metrics that matter to your business, show that you can measure them, and illustrate how you can adjust them and other aspects of the company to move the business forward.  

3) You don’t have a clear marketing strategy

You intend to sell a product, so you must have a strategic plan to boost sales and gain an advantage over your competitors. Investors need to know how you can grow their money, and marketing is essential to making that happen.

Do you have specific marketing goals? Do you know the best way to promote your product? How much will it cost you to do it? Is it the best possible way to spend on marketing? What are your distribution channels? These questions need to be deliberated on very heavily so that when it’s time to pitch to investors, they know that you have a plan in place. 

An investor can easily pick your business apart if you don’t have marketing goals in place. They want a scalable product that can give them good returns. If you aren’t able to plan and execute marketing strategies that can achieve the desired targets, you will not succeed in getting funding.

4) You don’t have the right leadership qualities

It always bears repeating: an investor is putting their money in your team as much as they are putting money in your product. 

They will assess your capabilities as a founder or CEO, and if you don’t have the qualities that will help the company and the team succeed, that will be a major red flag for them.

Founder and CEO require rather different skill sets.  

Additionally, the qualities of a CEO required to drive a startup from the ground up are not the same qualities required of a CEO who needs to scale the business. As the founder or CEO, you might need to consider stepping down from your role and finding someone else to fill those shoes instead.

Ensure that every member of your team has the right expertise so that every department aligns well. Having someone at the helm to follow through on strategic business objectives and lead the company to growth will attract investors. However, this can be difficult for many startup founders to do as their attachment and/or pride can get in the way of them letting go of the reins.

5) You don’t have financially sound projections

It’s easy to become so optimistic about your company’s financial projections, especially when you’re expecting funding. You might not realize that investors would rather see you having a healthy dose of caution instead of making extreme projections. 

Solid and realistic projections are essential as you plan for growth. If the projections are too optimistic, investors won’t believe you. Be careful not to over-promise, as they will immediately know it when they see it. At the same time, if the projection is too conservative, it might not pique their interest at all. 

Plan for predictable growth and set modest expectations. This will show investors that you have a handle on your operating expenses and they will know where their money goes. Don’t forget to factor in your customers’ contributions to the bottom line, which will help you think ahead and determine how your company will grow. 

These are just a few things that turn investors away. There’s always something to be improved on that will eventually lead your company to success. Take the time to learn the ropes and invest in yourself and your team. 

Refine everything from your business model to your marketing plan. Know the target available market and the competition by heart. Be open to real feedback and suggestions from trusted sources, especially potential investors.

Eventually, investors might even seek you out, instead of you pitching to them.

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