9 Things That Scare Off Potential Investors

Investors are increasingly risk averse, and although it may seem like they’re chasing start-ups with crazy valuations the reality is more serious than that. Investors need to see value before pursuing a startup for investment, and they want to obtain all the right information that’s needed for a positive fund.

There are many things that can scare off potential investors and the worst part about being an investor is when a founder tries to lie.

A founder once caught, can face many lines of rejections as investors can quickly spread the word and warn others.

If something ticks them off the wrong way, they can warn other investors to avoid your portfolio completely, and you may be left wondering what went wrong.

Making mistakes may not be an option when it comes to raising investment, and you may have to hustle harder to ensure that nothing goes wrong when talking to investors.

Here are 9 things that you need to ensure you don’t do to scare off potential investors

#1: Unrealistic Claims About Market Size

Investors are quite savvy when it comes to knowing about the latest market sizes of industry and competition. They can’t be tricked easily with inflated market sizes and those that do won’t be able to add much value beyond temporary cash infusion.

Sophisticated investors, the ones with the connections, cash and leadership, know the value of a company from the moment a founder sits at the table.

Only if the market size is feasible will an investor start paying for your expansion plan and marketing strategy. If you haven’t proven that your startup can realistically get 1% of 1% of the industry’s market size, don’t bother mentioning it.

Instead you should use real numbers shared by the experts or give a calculated guess.

#2: Disrespecting Your Competitors

Often when we try to cut a deal quick, we fail to understand where our competitors are on the food chain and end up disrespecting them.

By talking big numbers and even bigger hopes and dreams, we try to do it boasting about our prowess. No investor wants to hear a novice bash an industry player because it’s a sign of immaturity and carelessness.

The founder could talk like this to the press and tarnish the brand image at the same time. Your competitors should always be a source of inspiration and push you to work harder.

Don’t downplay them or be afraid of them when talking to your investors.

#3: Unattainable Financial Projections

A company’s finances are the backbone of its operation.

You can’t fake the numbers or inflate them to the point of no return.

There are so many pitches that investors toss out the door because they contain numbers that are based on a simplified algorithm. Don’t go online to get an estimate of revenue.

Talk to an expert or a smaller VC fund about what revenue targets are realistic under what timeframe. Every VC knows that a company takes time to grow and yours is no different.

Your revenue projections should be realistic and should be based on industry benchmarks and your own capabilities.

#4: Presenting Too Much -- Or Too Little

Show, don’t tell. That’s a good rule of thumb when presenting to investors, who are looking for the meat in the matter.

They want to know the fundamentals in the business plan – the marketing strategy, the revenue generated and sales so far. They will get easily turned off from what you’re doing if you’re not upfront with them or give them so much that they get burned out.

A 15-page business plan is more than enough to get the point across.

#5: Misunderstanding Your Analytics and Metrics

What’s your CaC? What’s your LTV? How well do you convert on Facebook? If you can’t answer fundamental questions about your business, then you might be looking at an investor that’s scared.

You don’t want to know everything, but just enough to be able to process whatever question that may come at hand.

Without these core metrics, you won’t even know how much to raise.

E.g. if your cost of acquisition is $500, then you need an influx of $100,000 for a strong user base of 20,000 early adopters.

#6: Having an Arrogant Attitude

Arrogance can be a mood killer and another sign of immaturity.

Founders want to get the most amount of money for their valuation, but should also have the guts to walk away when the deal isn’t working.

However, being arrogant and not listening to the investor may be a bad idea as you might be termed as a bad apple. While some founders thrive on being rebellious, they can’t be arrogant to an investor.

If you’re looking for $500,000 in one day, then you need to make sure that the investor makes it all back and then some.

Otherwise they can invest it in the stock market and don’t need your start-up at all.

#7: Too Much Focus on Features, Not Benefits

What does your startup actually do?

How does it benefit people?

If you can’t answer these fundamental questions, you might be running a hustle and not a startup. No investor wants to fund a hustle.

Do you have adequate barriers to entry?

Do you have something novel like a brand or a loyal customer base?

You need to focus on key questions like these to be able to create trust with the investor

#8: Overdoing the Exaggeration

Don’t exaggerate!

Be humble and keep on doing what you do.

When you exaggerate, you create a feeling of open-inadequacy that’s transparent. Investors, especially seasoned ones, know a good investment from a bad one and can see exaggeration when they read the first page of your business plan

#9 Not Staying Focused –

Focus is key.

You can’t be doing two or three different things within one startup ecosystem as that will create chaos in the fundamentals of the brand.

If you are not focused about your start-up and how much you need to raise, then investors will walk away happily. They don’t want to deal with drama and prefer investing with startups that have a focused approach

Conclusion

Follow these 9 steps and ensure that you don’t scare off investors from your business pitches.

Don’t be discouraged by negative feedback or be arrogant about it, but always remember to work hard and stay focused.