Startup business owners often face difficulty getting finances for their businesses, despite investors having massive capital available. This is an issue that many entrepreneurs encounter, yet the underlying reasons for the lack of appetite to support startups are often overlooked. In this article, we will explore the characteristics of startup businesses that may explain why investors have a low appetite to finance them. We will look at the challenges such as small business ideas, an underwhelming pitch deck, lack of market knowledge, lack of the right management team, lack of knowledge of competition, inability to compete with capitalized competitors, and more. By understanding these characteristics, business owners can take steps to make their businesses more attractive to investors and increase their chances of success.
Characteristics of Startups that reduce Investors’ Appetite
Small business Idea:
Investors like to issue a considerable amount of money, expecting significant returns. Most businesses start as micro or Small businesses for which investors consider such businesses too small to attract funding from them.
An underwhelming pitch deck:
While applying for funding from investors, business owners prepare executive summaries describing their businesses in terms of market strategies, customers, competition, and the like. Investors consider the startup’s executive summaries underwhelming and can not attract funding.
Inability to figure out what investors like:
Most startups are not aware of the investors’ areas of interest, and thus they do not know areas of focus for preparation. As a result, they fail to answer even common questions from the investors.
Lack of market knowledge:
Investors usually consider startups using business ideas not been tested. Thus, it is not possible to fund an idea that seems to fail shortly.
Lack of the Right Management Team:
Having the right Management team is essential in managing business and taking it in the right direction. Most startups belong to sole proprietors. In most cases, the owners do neither have business management skills nor business experience. Thus, the investors simply tell you that you don’t have the right management team and miss the funding.
Lack of knowledge of Competition:
Competition in business is something that one can not avoid. Most Startups are not capable of thoroughly evaluating their competitive industry. Knowing the competitors and setting strategies to fight competition are among the requirements from the investors. So, if you don’t understand the competition, you miss the attraction of investors’ funding.
Inability to compete with the capitalized competitors:
There are already strong competitors in the market with adequate funding. The fact that startups can not compete with them denies the right to get funds from investors.
Inability to prepare realistic financial projections:
Knowing how to project your financials is a business strength. However, most startups do not have the skills to prepare realistic financial projections. Financial projections give ideas on profitability and financial position. Before investing in any industry, investors want to project what will happen to the business in the short, medium, and long term.
Inability to carry out proper market research:
It is the responsibility of the business owner to convince the Investors about the need for the product or service that needs funding. The ability to convince investors about the need for the product or service comes from market research. However, many startups cannot undertake proper market research. Therefore, investors lack confidence in the demand for the product or service. Furthermore, most startups don’t articulate how to market the product or service and obtain customers cost-effectively.
Lack of good prototypes of the product:
Most startup businesses lack excellent prototypes of their products that can convince investors. A good product prototype facilitates attraction and promotes investors’ appetite to invest.
Conclusion
In conclusion, it is essential for startup business owners to understand the reasons why investors may have a low appetite to finance their businesses. These reasons include small business ideas, an underwhelming pitch deck, lack of market knowledge, lack of the right management team, lack of knowledge of competition, inability to compete with capitalized competitors, and more. By understanding these characteristics and taking steps to address them, startup business owners can make their businesses more attractive to investors and increase their chances of success.
CPA. Dr. Seraphia Mgembe