Whether you’re about to launch a pre-revenue business or scale an existing enterprise, you have big ambitions you need to fulfil. Often, securing substantial investment is the first and most significant step in enabling you to achieve your goals.
Securing investment is no mean feat, however. First, you need to approach the right investors and find an opportunity to present your business to them. Next, you need to create a compelling presentation that shines a light on your proposition and brings investors on board.
As part of their role, investors see countless pitches every day. Not every one of those businesses will be lucky – so, if you want to succeed, you need to tick the boxes that your competition doesn’t. This means delivering a presentation that provides detailed insight, assures return on investment and avoids critical mistakes that many companies make.
Below, we have outlined the nine top reasons why an investor may avoid committing to your business. By understanding these reasons, you can address them in your proposal and strengthen your chances of success.
- Your finances don’t add up
- You have an inexperienced management team
- There’s a lack of growth potential
- Your business model is poor
- You don’t offer customer value
- You don’t understand your competitors
- Your idea has been done
- There’s a lack of strategy
- You’re pitching to the wrong people
Your finances don’t add up
One of the main things an investor will be looking for in your pitch is a detailed insight into your business’s financial situation and how you expect this to change with investment. They want data that is carefully calculated, accurate and reliable, so you need to present the appropriate information to allow them to carry out their due diligence investigations and have confidence that their money will be used appropriately.
This means undertaking reviews of any existing financial history you have and utilising market data to create forecasts that show the trajectory of your revenue. Of course, the ultimate aim is to show the profitability of your business. However, don’t be tempted to lie or exaggerate claims: investors will quickly dig out any false promises, and your business will lose credibility as a result. To prove your financial understanding and ability to handle investment, you need to do your research and make sure your finances make sense before you approach an investor.
You have an inexperienced management team
The management team behind your business matters as these are the people who will lead your company to success. So, if you are inexperienced, unqualified or lacking vital skills, it will deter investors.
Focus on building a strong leadership team with proven achievements in the industry or their general career. You should also make sure all the skills required to run your business are catered for, including people at the head of every department. If there are gaps, you need to highlight to investors your recruitment plans to fulfil these effectively.
You will also need to show the entire staff believes in your business and can bring it to fruition to convince an investor that you have the right people at the reins.
There’s a lack of growth potential
The critical thing that investors want to see in your proposal is the growth potential your business has. If a company can expand, it is usually a good indicator of increased demand and sales, higher revenue and accelerated profit – which translates as a better return on investment. Conversely, if an enterprise doesn’t have growth capacity, it could signal stagnant income or even dwindling profit after a set period.
Across your presentation, you therefore need to highlight the growth potential. This could include insight into how you might expand and when this would be expected, new markets that you can tap into, or ways to drive demand through specific strategies. Remember to include the financial aspect here and how this growth will correlate with rising income.
By doing this, you will assure investors of the possibilities available and make them more inclined to back your business.
Your business model is poor
Your business model is a critical document that showcases how your company will be run, what the value proposition is and how demand will be met. Due to its importance, it will be closely scrutinised by investors. If the model is flawed, it is an indicator that you might not understand the market or industry and be unable to succeed in your ambitions.
To avoid this happening, you need to ensure the model you create makes operational and financial sense. Spend time crafting it, focusing on your competitors, market research, and other data to ensure all bases are covered. Essentially, you need to be confident it works and will deliver profit for your business, as this is what investors will be asking.
You don’t offer customer value
Another red flag to an investor is when a venture does not offer customer value and this is about truly understanding your value proposition. Your customers, whoever they may be, are the ones who will generate your profit. So, if there’s no demand or you can’t serve them right, your income will take the hit and you’ll ultimately end up out of business – leaving investors out of pocket.
You need to have a deep understanding of your target market and what tactics you will employ to engage and convert them to customers. The easiest way to do this is to identify a gap in the market, such as a pain-point that isn’t addressed, and create an offering that fulfils. Alongside effective sales and marketing strategies, this should automatically draw people towards your business – bringing sales and profit with it.
You don’t understand your competitors
When launching a business, you need to understand the market you are entering. This means knowing who your competitors are and continually tracking them. Competitors pose a threat to revenue and profitability and, if you can’t keep on top of them, you risk being left behind. This means you lose customers to these competitor offerings, affecting your bottom line.
When presenting to investors, showcase your knowledge of your competitors and how you have the edge over them. You will want to demonstrate an ability to increase market share and carve out space for yourself in the industry. This will convince investors of your business’s longevity, without getting beaten by competitors, and offering better returns for them.
Your idea has been done before
With so many proposals brought to them, investors will have heard most ideas before. So, to stand out, you need to present something new.
If you aim to create a business in an area that’s already densely populated, it will increase the obstacles. A competitive market is harder to get on top of and could highlight a lack of demand as customers are already being served elsewhere. Unless you are bringing new value to the market, you are unlikely to gain much traction, and so an investor won’t be willing to support you.
It’s also worth mentioning that some investors like a challenge. Often, that challenge means working with a niche or unexpected company that offers remarkable potential. So, if you can provide that, it might just win people over.
There’s a lack of strategy
Many businesses focus on their business’s overarching strategies – such as what services are offered, how these are provided, and at what cost. However, it is crucial to also focus on departmental strategies: namely, marketing and sales.
Your marketing and sales strategies matter because they generate demand and create awareness of your brand. Both of these have a substantial impact on your bottom line. As such, you need to provide relevant information to investors to highlight how you will reach a point of profit. They’ll also be looking for tactics that complement your overarching business model and goals.
By offering this insight, you’ll show investors you have considered the whole picture, including the operational strategies that will make your broader goals a reality.
You’re pitching to the wrong people
While you might be itching for any opportunity to get in front of an investor, not every investor is suitable for a business and vice versa. What one person thinks is a promising endeavour may be entirely uninteresting to another. So, you need to make sure you are pitching to people who will engage with your idea.
Networking is a great way to check whether an investor is suitable for you, such as through shared industry interest or experience. You can also spend time researching to find appropriate sources or ask contacts to refer you if they know anyone.
However, sometimes it is only through pitching that you find out if an investor is a match for you. So, even in the face of rejection, you shouldn’t be deterred. Instead, take feedback in and try again.
Summary
When seeking investment, it is only natural to want to do everything you can to increase your chances. By understanding the common reasons an investor might turn you down, you can adapt your presentation and planning to avoid mistakes and make an investment-friendly proposal.
If you need further support in getting ready for investment, we are here to help. Our team of advisors can work alongside you to create compelling pitches, robust business plans and supporting evidence to attract funding.
We can also put you in touch with relevant contacts as you progress through the investment journey, helping you seize opportunity.