One of the challenges startup business owners encounter is difficulty getting finances for their businesses. The problem exists despite investors having massive capital available for financing businesses. Owners of startup businesses suffer from lack of funding despite the existence of investors with a considerable amount of money. Have you ever evaluated the reasons for the lack of appetite to support startup businesses?
In this article, you will see the characteristics of startup businesses that form a reason investors have a low appetite to finance startup businesses.
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 the 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 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 fund from the 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.
Startups should be conversant with the above reasons and get ready.
2 thoughts on “Understand the Reasons Why Investors do not like to Finance Startup Businesses”
What should I do to increase investors’ appetite for my business?
Hi! Many Startup business owners, struggle so much to get capital. Let us share your experience on how you managed to get capital for your startup.
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