Factors that Deter Investors from Investing in your Business
If you’re looking for investors to fund your business, keep in mind that part of the process is understanding what specific attributes investors want to see in the businesses they choose to fund.
Investors have various interests and goals; some have expertise in certain industries or want to invest in certain types of companies. Some want to be actively involved with managing the business, while others are more hands-off. Some investors want to help your company grow and quickly scale, and then “exit” by selling their shares of your company at a large profit. Others have a more patient approach and will want to stay involved with your business for a longer timeframe.
There is no one-size-fits-all approach to finding investors, but there are a few key factors that might deter them from investing in your business. If you are looking for investors, make sure you avoid these key mistakes that might drive them away.
Lack of Visibility and Transparency
If you are asking investors to risk their money on your business, you need to be totally up front with them about the financial condition of your company. Be prepared to let them see your books, your profit projections, and other sensitive information. If you aren’t forthcoming enough about the condition of your business, investors might lose confidence in you.
Untested or Unproven Product
What product is your company trying to sell? Have you already developed a Minimum Viable Product (MVP) or product prototype? If you have a great idea in your head for what you want your company to be, but you don’t yet have an actual product to show people, investors will likely not be interested.
Lack of Understanding of Market Conditions and Competitors
Some entrepreneurs get so excited about their product or new technology that they forget to look at the broader picture of what’s happening around them in the market. What is the expected size of your market? What market share do you think you can attain? Who are your current competitors, and how does your company compare to the competition?
If some other companies are already offering a better version of your product, or if big incumbent players have already seized all of the market share, it will be difficult to persuade investors to support you. Investors will want to know that you have thought about all of these issues and have a clear idea of just how much future growth potential exists in your market.
Lack of Strategic Vision
The best entrepreneurs are visionaries: They may not have all the best technical skills, but they have a fiery sense of vision for the future of their business and how it can make a difference in the world. Investors want to see this passion in the entrepreneurs they fund. Of course you need to have a great product — but investors are investing in you as an individual just as much (or more) than they are investing in your brand.
Think about these questions before you start talking with potential investors:
- What is your strategic vision for your company?
- What big, audacious goals do you want to pursue?
- How fast do you want your company to grow, and have you already made plans for how to achieve that scale?
- What kind of company culture do you want to create?
- How will you maintain your sense of True North as the company leader, even in the face of adversity?
These questions are all part of the overall vision that investors will want to see in you before they agree to fund your company.
Understaffed or Inadequate Executive Team
Along with a strategic visionary founder, investors want to see companies that have a strong executive team in place. Depending on the size of your company, that could mean a few senior VPs or other C-level executives like a Chief Operating Officer, Chief Technology Officer or Chief Marketing Officer. But investors aren’t just looking for fancy job titles; they want to see that your executive team has a diversified skill set and a strong working style to complement each other’s strengths.
If your company has not yet hired top talent to fill these positions, or if you are still in the early stages of growth and everything is being done by the founder and one or two partners, investors might be dissuaded from investing with you. Having a strong executive team is a sign that you know how to hire good people and you’ve already created positive momentum in staffing up your company. If your company is going to grow, you’ll need to hire dozens or hundreds of additional employees in the years ahead. Your first few hires show investors what kind of company culture you’re building, and whether or not you can be effective at attracting and retaining top talent.
Finding investors can be one of the most exciting stages of starting a business and managing its growth. Don’t forget to “interview” your prospective investors — your company is not the only one being evaluated here. Ideally, you should be looking for investors who:
- Are a good match for your company’s goals and strategy
- Have expertise in your industry
- Are the kind of people you’re excited to work with, collaborate with and learn from
- You have a strong level of trust and good interpersonal chemistry with
If you’re ready to find investors, you need to be ready to take a certain amount of risk on the future of your business; but like any good business decision, the right risks are worth taking.
Are you ready to start a business, form an LLC, or reorganize your business structure to make it easier to find investors or enjoy the protections and benefits of operating as a legal business entity? Talk to Incfile today! Our incorporation experts can help you evaluate your options and get on the right track for a bright future with an expertly-managed company.